The pound is put to the test by the British budget as Ebury sees little room for positive surprises

The pound’s calm is not enough to suggest that the British autumn is free of risks. In Ebury’s reading, set out in the G3 FX Update of 28 October 2026, the market had prepared for a prudent budget move, with limited new commitments and an eye on the confidence of bond investors. That very expectation reduces the room for a favourable surprise: if the outcome deemed reasonable is already priced in, something more is needed to support the currency further. That is the thread running through the report signed by Matthew Ryan, Head of Market Strategy, which pairs the British case with scenarios for the dollar and the euro ahead of the central banks’ meetings.

The pound must also convince those financing the debt

Ebury describes a currency that strengthened slightly against the euro in the first part of the week and a gilt market, the British government bond market, that was relatively orderly before the Autumn Budget. The comparison the report draws is with past turbulence triggered by fiscal announcements capable of surprising public debt financiers. This time, analysts expect modest increases in spending, funded mainly through reallocations, together with targeted tax rises. This is a forecast made before the budget was presented: the measures expected should therefore not be confused with policies already approved or with acquired economic outcomes.

The report gives particular weight to the fiscal headroom, that is, the space left relative to budget constraints using the assumptions adopted in the forecasts. Ebury believes that rebuilding a cushion of around 15 billion pounds could help reassure the bond market. That figure is neither a guarantee nor a universal regulatory threshold: it is the benchmark used by the analysts to assess the credibility of the intervention. The quality of the funding sources and the ability to deliver the announced savings also matter, especially when part of the adjustment is pushed into later years.

A prudent budget can avoid damage without solving growth

For Ebury, the challenge is to combine financial stability with the ability to invest. A budget that keeps debt under control can avoid immediate strains, but repeated recourse to new taxes risks weighing on the very activities from which future growth should come. The company therefore does not present the autumn budget as the definitive solution to Britain’s fiscal difficulties. Rather, it describes it as a step that can buy time: an important distinction for anyone reading sterling’s movements as a broad verdict on the economy’s prospects.

The downside risk outlined in the report is conditional. If the funding measures prove less convincing than expected, if fiscal headroom remains inadequate or if future commitments appear unrealistic, pressure can return to both gilts and the currency at the same time. This is not a mechanical relationship in which higher yields always strengthen the pound: when rising yields reflect greater concern about the borrower, they may be accompanied by a weaker exchange rate. The nature of the bond move matters as much as its direction.

For the dollar, what matters most is what the Fed is signalling

For the United States, Ebury rules out any change in rates at the 28 October meeting in its scenario and focuses on the Federal Reserve’s communication. The report contrasts signs of still-high inflation with less robust readings on employment, wages and some price measures. It adds that the rise in Treasury yields has already helped tighten financial conditions, doing part of the work that would otherwise require a more restrictive monetary policy. According to the analysts, it is against this balance that any central-bank caution should be read.

However, in Ebury’s forecast, the absence of an immediate move does not mean the rate-hike chapter is closed. The company still expects a tightening in December, stressing the role of the data and the possibility of differing views within the committee. It also sees limited room for further near-term dollar strength if that scenario is already largely priced in. The distinction helps in reading exchange rates: an economic forecast can be correct and still fail to produce the expected currency move if market participants had already anticipated it.

The euro is being hit by France, but the report distinguishes tension from contagion

On the European side, the document attributes part of the euro’s weakness to political uncertainty in France and to the widening spread between French and German 10-year bonds. Ebury reports a recent peak of 175 basis points, followed by a partial correction, and notes that the exchange-rate move remains relatively contained. Its interpretation is that the market is treating the issue mainly as a French problem, without so far pricing in a full-blown crisis in the euro area. This is the analysts’ reading, and it would change if instability were to spread.

For the ECB meeting of 29 October as well, Ebury expects rates to remain unchanged and greater attention to the tone of the communication. For those holding assets or making payments in multiple currencies, the picture outlined in the report suggests a way to read the market before it suggests a direction: separate the actual decision from the surprise relative to expectations. In the autumn described by Ebury, the pound, dollar and euro respond to different combinations of fiscal credibility, inflation and political tensions. The report offers a dated scenario, not a promise about future exchange-rate levels.