EUR/GBP eyes rebound: Can UK budget and BoE rate cut trigger a rally?

GBP falters while EUR/GBP approaches rebound amid UK fiscal tightening and rate cut speculation.

Source: Deriv X TradingView

The EUR/GBP pair is nearing a potential rebound after encountering sustained downward pressure and entering oversold territory on the stochastic oscillator. With strong horizontal support at 0.8307, a recovery may be imminent. Key drivers include looming fiscal and monetary developments in the UK.

UK chancellor sets autumn budget for October 30, 2024

On 30 October 2024, UK Chancellor Rachel Reeves will announce the Autumn Budget, likely signalling tax increases and spending cuts. These measures follow Prime Minister Keir Starmer's criticism of previous financial mismanagement, and IMF studies suggest such fiscal tightening could further slow GDP growth. The UK already faces higher tax rates than the OECD average, and any increases are expected to reduce household and business spending, with potential capital flight.

Source: OECD

Bank of England: Monetary Policy Meeting and rate cut speculation Additionally, the Bank of England's Monetary Policy Committee meets on 7 November 2024, with potential rate cuts on the horizon. Governor Andrew Bailey has hinted at aggressive cuts to alleviate mortgage pressures, especially as the UK’s economic growth lags behind that of the US. Though the BoE began cutting rates in August, one month ahead of the Federal Reserve, UK interest rates remain higher, heightening economic concerns.

Source: adopted from tradingeconomic

Technical analysis

Source: Deriv X TradingView

Technically, GBP/USD has faced rejection at 1.3386, with a likely test of the 60-week moving average at 1.2760. Tighter UK fiscal policies, combined with dovish monetary actions, continue to undermine the pound's performance, contributing to stronger depreciation against the euro. 

Conclusion

A rebound in EUR/GBP is likely as technical and fundamental factors align. The upcoming Autumn Budget and BoE rate cuts could exacerbate GBP weakness, while eurozone challenges persist, including a projected 0.2% economic contraction in Germany. Traders should monitor these developments closely for further EUR/GBP movement.