Can the short-term rebound of the British Pound be sustained? Investment banks are skeptical about its durability.

The GBP/USD exchange rate experienced a brief rebound after the UK budget announcement on November 26. As of the latest quote, GBP/USD is at 1.3227, down 0.08%, but it previously rose to 1.3269, hitting a nearly one-month high. However, whether this upward momentum can be sustained has become a focal point for market attention.

Budget Effect Fades, Rally Difficult to Continue

Morgan Stanley recently adjusted its rating on the British pound, withdrawing its previous bullish recommendation. Strategist David Adams and his team noted in their latest report that although the budget announcement indeed sparked a short-term rebound in the pound, this upward trend is unlikely to last.

“As the market digests the impacts of the government’s budget, the pound is likely to lose its main support. The positive sentiment surrounding the budget is difficult to sustain long-term, especially in a context of weak fundamental drivers,” analysts said.

The investment bank emphasized that the attractiveness of the GBP/USD has noticeably declined. In recent trading, the correlation between the pound and the stock market has fallen to zero, indicating that traditional arbitrage mechanisms have become ineffective. Meanwhile, domestic positive factors are also relatively lacking, significantly reducing the reasons to remain bullish on the pound.

Central Bank Rate Cut Cycle vs. Economic Growth

From a long-term perspective, the Bank of England’s rate cut policy has laid the groundwork for the pound’s future trajectory. Morgan Stanley pointed out that a full rate-cut cycle could create more fiscal space, thereby boosting household consumption and corporate investment. With borrowing costs falling, economic growth may gradually improve.

“As the rate cut cycle nears its end, economic growth will become the core factor influencing the pound’s future trend, rather than traditional arbitrage trading. If rate cuts effectively boost economic prospects, market sentiment towards the pound could undergo a significant reversal,” the strategist added.

This suggests that the pound’s sustained performance depends on whether the real economy can benefit from easing policies. In the short term, the budget effect may still offer one last rebound opportunity, but in the long run, economic fundamentals are the decisive factor.

Fiscal Vulnerability and Pessimism from Investment Banks

In addition to Morgan Stanley, Jefferies also expressed caution about the outlook for the pound. The firm believes that the recent rally is very difficult to sustain, and further weakening risks remain.

Jefferies economist Modupe Adegbembo pointed out that the fiscal vulnerability of the UK remains a Damocles sword hanging over the market. “Structural imbalances and fiscal mismanagement risks are still priced in, which limits market confidence in a sustained rally of the pound. Against this backdrop, strategies targeting yield curve steepening will be more attractive.”

The consensus from these top-tier investment banks points in the same direction: the current rebound of the pound is more of a technical response to short-term positives rather than a sustainable rise driven by fundamental improvements. For the pound to maintain its upward trend, substantial economic growth and continuous fiscal improvement are required—and these conditions are unlikely to be fully met in the short term.