FTSE, GBP/USD, EUR/GBP Forecast: What to expect from the Chancellor’s Budget

When is the Budget?

Chancellor John Healey will deliver his first UK budget, also the first under Prime Minister Andy Burnham, on Wednesday, October 28, usually around 12:30 GMT.

The Federal Reserve will also announce its rate decision and publish its statement at 18:00 on the same day, potentially bringing volatility to GBP/USD. The euro, sterling and the FTSE will also be in focus.

The Gilt market matters

The main questions for the market will centre on fiscal credibility, particularly given the turmoil seen in the bond market in recent weeks. The 30-year gilt yield reached a high of 6.05% at the start of this month, its highest level since 1998. The 10-year yield reached 5.527% on the same day, its highest level since 2007. Yields have since eased back, in a move seen across global markets, with Treasury yields also falling amid safe-haven flows into bonds as the tech sector in the U.S. and globally comes under pressure.

More specifically in the UK, yields have eased as several big players have rotated into gilts, betting that the Chancellor will stick to fiscal discipline in his first budget.

With pressure from the gilt market, Healey will need to lay out the government's policies on taxation and spending while staying within the fiscal guardrails. This is important to avoid the kind of creative accounting that could anger the gilt market. If investors lose confidence, recent history shows the potential for a significant negative reaction.

Higher UK borrowing costs not only mean the government has to pay more to borrow, but can also quickly feed through to businesses and households, tightening financial conditions.

Currently, Healey does not have much headroom, which is the buffer between the government's plans and its fiscal rules. According to Reuters, it is around £10 billion–£12 billion, significantly down from £23.6 billion at the March fiscal update.

Furthermore, September public sector net borrowing came in at £24.52 billion, above expectations of £23.85 billion. Net debt passed £3 trillion for the first time. Borrowing from April to September was £97.8 billion, well above the OBR's earlier forecast of £91.8 billion, highlighting the challenging backdrop for Healey.

What to watch

The government has pledged to keep headline income tax and VAT unchanged. This also covers National Insurance, leaving smaller taxes and spending to do the work. There had been rumours of a rise in capital gains tax, although this is looking unlikely.

Instead, the banks could be under the spotlight. The current 3% surcharge raises around £1 billion a year, and there are growing expectations that Healey will increase it further. Bank share prices have fallen between 3% and 5% so far in October and could come under further pressure.

Other sectors sensitive to the budget include housebuilders, particularly given the link between gilt yields and mortgage rates. While support for first-time buyers has helped lift housebuilders, rising gilt yields and mortgage rates could have the opposite effect.

Regardless of the budget, the Bank of England is widely expected to hike interest rates by 25 basis points on November 5, taking the Bank Rate from 3.75% to 4%. Around 100 basis points of tightening is already priced into sterling, which appears quite aggressive.

Should gilt yields fall following a calm budget, that could swing both ways and could actually pull the pound lower. A weaker pound could support multinationals on the FTSE.

FTSE 100 technical analysis

After an attempted breakout from the symmetrical triangle pattern, the FTSE ran into resistance at 10,900 and reversed back into the pattern. The price still trades above the 50 EMA and the 200 EMA, keeping buyers hopeful of another breakout to the upside.

Should buyers take out the falling trend line resistance around 10,750, this would open the door to 10,900. A rise above here would create a higher high, bringing 10,990 into focus and potentially fresh record highs.

On the downside, immediate support is seen at the 50 EMA at 10,690, with a break below here opening the door to horizontal support at 10,625. Attention then turns to 10,430, the 200 EMA, and the rising trend line support.

FOMC rate decision at 18:30 GMT the same day

It can't be ignored that the Federal Reserve will also announce its rate decision on the same day as the budget, at 18:00 UK time. While the Fed is expected to leave rates unchanged at 3.75%–4%, the Fed statement and comments from Chair Kevin Warsh could still create volatility. The market is pricing in a rate hike in December. A hawkish hold could support the U.S. dollar.

GBP/USD technical analysis

GBP/USD recovered from a period of consolidation, pushing above 1.3270, but that recovery ran into resistance around 1.34, the 200 EMA, and has since turned lower. The price is testing the 50 EMA support.

A break below here and the 1.3340 support zone could open the door back to 1.3270, before attention turns to the 1.32 support zone.

Should the 50 EMA hold, buyers would need to break above 1.34 and the 200 EMA to create a higher high and bring the 1.35 psychological level into focus.

ECB rate decision October 29

The ECB will also announce its rate decision on October 29. The central bank is expected to leave interest rates on hold at 2.5%, with another hike expected in December.

France has been a key driver, with the 10-year spread over German bonds reaching 141 basis points last week, the widest since 2012. This has helped push EUR/GBP to a 16-month low.

This combination of French fiscal stress and expectations of a more hawkish Bank of England has pulled EUR/GBP sharply lower. However, any jitters surrounding the UK budget could see a near-term recovery, especially if the ECB opts for a hawkish hold.

EUR/GBP technical analysis

EUR/GBP trades below its 50, its 200, and its falling trend line, dropping to 0.836017, a level last seen in May 2025.

While the price has recovered slightly back up to 0.84, this brings the RSI out of oversold territory but the bearish picture remains.

Sellers will need to break below 0.8360 in order to create a lower low and turn attention to 0.8315, the March 2025 low.

Any recovery would need to rise above 0.8465 resistance. The July low before attention turns to the 50 EMA at 0.85