Investors are selling off UK bonds and sterling, indicating that people are once again nervous about the Labour government's spending and tax profligacy.

Kyle Chapman, foreign exchange market analyst of Ballinger Group, said: "As the selling of British treasury bond bonds intensified after the budget, the pound fell to a two month low. After Reeves' borrowing plan was proved to be higher than expected, bond investors continued to sell British treasury bond."

On Thursday, the pound fell to a nearly one and a half month low of 1.2743 against the US dollar, but has now rebounded slightly, trading around 1.2890.

XTB Research Director Kathleen Brooks said that the pound is feeling intimidated by bond obligations and is also facing pressure. Brooks believes that Reeves is likely to be forced to reconsider her plan.

However, there is still potential upside to the pound, which is the future policies and economic outlook of the Bank of England.

Traders have reduced their expectations for the Bank of England to cut interest rates, and currently predict that three interest rate cuts will be implemented by the end of 2025, with the magnitude of the cuts not exceeding 95 basis points.

Goldman Sachs announced that it currently expects the Bank of England to keep interest rates unchanged in December, adjusting its previous forecast of a 25 basis point rate cut due to the UK budget policy being "more expansionary".

Goldman Sachs economists pointed out in a report that "the expected economic growth in 2025 is stronger, which may reduce the urgency of continuous interest rate cuts in the short term. Although the possibility of interest rate cuts from now until December still exists, especially in the case of a significant decline in inflation data, we are currently more inclined to believe that the possibility of suspending interest rate cuts is greater

Considering previous communication and unexpected developments in inflation, Goldman Sachs continues to expect the Bank of England to cut interest rates by 25 basis points in November. Meanwhile, Goldman Sachs has raised its 2025 GDP forecast for the UK from 1.5% to 1.6%, and expects inflation to rise moderately due to increased demand associated with the GDP increase.

UBS predicts that the Bank of England will only cut interest rates once in 2024. Given that UK interest rates are still relatively high compared to other countries, this will provide support for the pound.

UBS expects the pound to rise to 1.38 against the US dollar by mid-2025. In the short term, if the pound breaks through the 1.30 mark against the US dollar, it is expected to further rise to 1.34.

Daily chart of GBP/USD