Pound Sterling Dips Against Euro and Dollar as UK Tax Hike Concerns Mount

Modified: Tuesday, 28 October 2025 19:30 BST - Written by Frank Davies

STORY LINK Pound Sterling Dips Against Euro and Dollar as UK Tax Hike Concerns Mount

The Pound Sterling came under renewed selling pressure on Tuesday, with broad losses across major currencies as markets turned defensive ahead of key central bank meetings and the late-November UK Budget.

The Pound to Dollar (GBP/USD) exchange rate fell sharply to 1.3282 (-0.44%), while the Pound to Euro (GBP/EUR) slid to 1.1388 (-0.54%), its lowest levels in over a month.

Sterling also weakened against commodity and safe-haven currencies, with notable declines versus the Australian Dollar (GBP/AUD 2.0161, -0.89%), Swiss Franc (GBP/CHF 1.0530, -0.67%), and Japanese Yen (GBP/JPY 201.93, -0.87%).

Although risk appetite has held reasonably firm on expectations of progress in US–China trade discussions, the Pound has struggled to attract support amid growing fiscal anxiety.

Budget speculation remains front and centre after reports that the Office for Budget Responsibility (OBR) may downgrade UK productivity forecasts — a move that could add roughly £20bn to the fiscal shortfall and force deeper tax rises.

This narrative has fuelled talk that Chancellor Reeves could opt for broader income tax or corporation tax adjustments in the 26 November Budget, raising concerns over the growth outlook and weighing heavily on Sterling sentiment.

Barclays still sees scope for the Pound to stabilise once fiscal clarity emerges; “Fiscal events remain the dominant factor for the pound in the medium term, but the bar for a positive surprise is not particularly high,” the bank said.

Globally, markets remain focused on this week’s Federal Reserve policy decision, with expectations firmly in favour of another rate cut.

ING noted: “Back in September, a well-telegraphed Fed cut triggered a sharp US dollar rebound. A repeat looks less likely now, with positioning more balanced. Still, we see the balance of risks on FOMC day tilted to the upside for the greenback.”

For the Bank of England, traders have priced in a roughly 70% chance of a rate cut by year-end, following the softer UK inflation data, while Rabobank maintained a more measured tone: “While the labour market continues to cool, it’s not enough to warrant an immediate cut.”

Persistent political tensions in France — where President Macron’s government faces renewed challenges over its budget — provided only minimal offsetting support for Sterling.

MUFG commented: “The demand for the French budget to include some form of wealth tax has come to a head. Without socialist support, any new no-confidence motion could yet succeed.”

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts