The UK budget tightening is a done deal. Is the pressure on the pound truly released?

On November 26, UK Chancellor Jeremy Hunt announced the budget plan, shocking the market. The plan includes an additional £26 billion in taxes and expands fiscal adjustment space to £22 billion, which is quite rare in recent years. The market reacted quickly—GBP/USD continued to rise over the next six days, reaching a near-month high of 1.3261. Meanwhile, the EUR/GBP exchange rate fell below 0.8745, hitting a one-month low.

**Why can the budget support the pound?**

Several investment banks and institutions have given the same assessment: this budget avoids the "black swan" scenario that investors fear most. Vivek Paul, an analyst at a well-known asset management firm, believes that the UK government has successfully achieved a balanced budget, and this policy stability will directly boost market confidence. Another analyst from a global financial institution, Sanjay Raja, stated that the scale of the budget exceeded expectations—the fiscal adjustment space has doubled compared to March this year, increasing from £10 billion to nearly £22 billion.

More importantly, policymakers see a new path to control inflation. Raja pointed out that these fiscal measures are expected to reduce upward price pressures, thereby providing the Bank of England with more room to cut interest rates. Improved market expectations regarding the Bank of England's interest rate trajectory have directly supported the pound's appreciation momentum.

**Has the risk of GBP depreciation truly diminished?**

However, there are cautious reminders among the optimistic voices. Andrew Wishart, a senior economist at a European bank, analyzed that overall fiscal indicators look good; the budget deficit is expected to gradually tighten over the next two years, providing support for the central bank's policies. But he also hinted that some fiscal tightening measures may have a time lag in their effects, and their credibility still needs to be observed.

A large Japanese investment bank's view is more direct—since the budget plan has eliminated the market's biggest negative concerns, traders who previously shorted the pound may be closing their positions. The institution advised traders to immediately reduce their short positions after the budget announcement, which could further ease the short-term downward pressure on the pound.

Market consensus is gradually forming: the negative outlook for the pound has been fully priced in, and the upside potential is opening up.