GBP/USD, EUR/USD Forecast: Two trades to watch

GBP/USD struggles ahead of the Budget and Fed rate decision

GBP/USD has extended its decline for a fourth straight session, trading around 1.33 on Wednesday, as investors look ahead to UK Chancellor John Healey's first Budget and the FOMC rate decision later today.

Around 12:30 GMT, UK Chancellor John Healey will announce his first Budget under new Prime Minister Andy Burnham. He is under mounting pressure to deliver measures to help ease the cost-of-living burden on households while also supporting businesses across the country.

However, his options are severely constrained by tight fiscal boundaries owing to elevated government borrowing costs and substantial tax increases introduced by his predecessor, Rachel Reeves.

With this in mind, Healey is likely to set out only modest changes in a steady-as-you-go, nothing-to-see-here Budget. However, beneath the surface, he faces a challenging balancing act.

Rachel Reeves raised taxes by £60 billion in her previous Budget. Since then, energy prices and inflation have risen, putting yet more pressure on households and businesses.

At the same time, the Chancellor will need to show that borrowing is under control to keep the gilt markets in line. He has already pledged to stick to the fiscal rules.

The Chancellor's headroom has shrunk by around half since March to between £10 billion and £12 billion, leaving very little wiggle room. As a result, expectations are that he will push big decisions down the road. However, that moves those decisions closer to the election, when big changes are less likely to be made.

Expected measures in the Budget include higher banking taxes, which could be used to fund help for households, such as a utility and fuel duty freeze, a rise in the minimum wage and a reversal of previous ISA changes. Higher defence spending could also be in focus, although a substantial long-term increase is unlikely to be announced.

Meanwhile, the U.S. dollar is rising ahead of the Federal Reserve interest rate decision later today.

The market is pricing in a 90% probability that the Fed will leave rates unchanged at 3.75%–4%.

With no change expected to the statement, attention will be on the vote split and Kevin Warsh's comments in the post-meeting press conference.

The market will be looking for any hints regarding a December hike, which is currently 80% priced in.

GBP/USD forecast – technical analysis

GBP/USD has faced rejection at the 200 EMA around 1.34, rebounding lower, falling below the 50 EMA and testing falling trendline support as well as horizontal support around 1.3280. While the price remains below the 50 and 200 EMAs, the path of least resistance is downwards.

Sellers need to break below 1.3280 to extend the decline. From here, attention turns to the 1.32 support zone. A break below here would extend the bearish trend and open the door to 1.31, ahead of 1.30.

Should the 1.3280 support hold, buyers need to rise above 1.3340 horizontal resistance before attention turns to the 50 EMA around 1.3350. A rise above the 200 EMA at 1.34 would create a more constructive outlook, bringing 1.35 into focus.

EUR/USD under pressure ahead of the Fed and ECB rate decisions

EUR/USD trades under pressure ahead of the FOMC rate decision today and the ECB decision tomorrow.

The Fed is expected to leave interest rates unchanged, with attention on the vote split and Kevin Warsh's commentary for clues about the timing of the next rate hike.

U.S. inflation is at 3.7%, while PPI is above 6%. However, core inflation is 2.6%, giving the Fed some scope to wait and see.

The market is currently pricing in around an 84% probability that the Fed will hike rates in December. Any dissent among the 12 committee members in favour of an immediate hike could strengthen the case for a December move. Conversely, no dissent could be seen as a less hawkish signal and potentially weigh on the U.S. dollar.

Federal Reserve Chair Kevin Warsh has been vocal in his dislike of forward guidance. Nevertheless, markets will be watching his tone carefully for clues about a December hike. Should Warsh express concerns over rising inflation, this could be interpreted as a signal that a December hike is more likely. A hawkish hold, including a more hawkish vote, could lift the U.S. dollar.

The ECB faces a difficult balancing act as it prepares to announce its latest rate decision on Thursday.

The central bank is widely expected to leave rates unchanged, having already raised interest rates twice this year as energy prices surged amid the Iran war. However, markets will be watching closely for signals about another rate increase, likely at the December meeting.

Furthermore, political and fiscal uncertainty in France has increased, alongside higher government borrowing costs, making the financial pressures more complicated since the September decision.

The euro has been under pressure in recent weeks amid the ongoing political, fiscal and social crisis in France, which could cap any upside for the shared currency in the near term.

EUR/USD forecast – technical analysis

EUR/USD has extended its declines, dropping to 2026 lows around 1.11. The pair trades below its 50 and 200 EMAs and the falling trendline, reinforcing the downward bias. However, the RSI is tipping into oversold territory, which could slow the decline.

On the downside, 1.11 is initial support for the pair, with further selling exposing 1.10, the key psychological level.

On the upside, resistance can be seen at 1.1250, with a rise above here exposing the 50 EMA at 1.1350, which also forms part of a horizontal resistance zone. Above here, the price would be on a firmer footing, bringing 1.15 into focus.