Britain Faces Tough Times

GBP/JPY

Key zone: 198.50- 200.00

Buy: 200.50 (on a confident breakout of the 200 level); target 201.50-202.00; StopLoss 199.80

Sell: 198.00 (on strong negative fundamentals) ; target 196.50; StopLoss 198.60

Yesterday, the royal currency lost more than 100 points against the dollar after British Prime Minister Keir Starmer confirmed strict but fair decisions to raise taxes.

The government now faces the challenge of filling a £35 billion fiscal gap while trying to maintain economic stability and voter support.

• Starmer told Labour Party MPs that the budget would be based on Labour values such as protecting public services, including the National Health Service.
  As a result, public debt should decrease and the cost-of-living index should fall.
• A detailed plan for replenishing the British budget will be presented on November 26.
  In the meantime, Chancellor of the Exchequer Rachel Reeves is studying dozens of potential tax increases.
  Lady Reeves made a rare “pre-budget address” to prepare taxpayers for unpopular decisions.
• The Chancellor emphasized the need to control public debt, refused to rule out tax hikes, and outlined plans to reform business taxes to support local companies.
• Reeves intends to take advantage of the downgrade in labor-productivity ratings by the Office for Budget Responsibility, which could cost public finances an additional £20 billion due to the simplification of the tax system.
• Also under consideration are higher fees on premium-class housing and a 20 percent tax on assets of citizens emigrating from the UK, expected to bring about £2 billion annually and apply to all asset types, including company shares.

This financial project has been dubbed the “Fair Growth Budget” because its fiscal measures will focus on reducing inflation.

Market reaction was immediate: the pound fell sharply against major currencies.

Bank analysts believe that tax increases could slow economic growth and undermine competitiveness on global markets.

The UK Services PMI for October came in at 52.3 versus 51.1 expected and 50.8 in the previous period – a strong positive for the pound.

The market expects a pause in rate-adjustment policy amid slowing yet still elevated inflation – CPI held at 3.8 percent y/y in September (above the BOE’s 2 percent target).

The probability of keeping the rate at 4.00 percent is about 85 percent.

The BOE decision is already priced in; surprises are not expected, but even talk of a 0.5 percent cut could put extra pressure on the pound.

The swap market currently implies around 30 percent odds of a 25 bps cut to 3.75 percent at this meeting.

Regarding the yen, inflation in Tokyo accelerated in October and remains above 2 percent, reinforcing expectations of further policy normalization.

Minutes from the last BOJ meeting show a cautious pace and internal disagreements about timing the next hike.

The spread between 10-year UK Gilts (~4.4 percent) and 10-year JGBs (~1.66 percent) remains wide, supporting carry-trade dynamics in cross-assets, but the trend toward narrowing increases risks.

In 2025, the GBP/JPY pair already renewed its high (204.50 on October 8); short-term movement now circles the psychologically important 200 level.

After quick BOE-related speculation, key zones are unlikely to change, and further pair dynamics will depend only on the yen.

So we act wisely and avoid unnecessary risks.

Profits to y’all!