First Light News: Week ahead: UK Budget Day Dominates

It was another bruising week for risk amid a cocktail of concerns that sent investors running for the exit. Despite positive earnings from bellwether chipmaker Nvidia (NVDA), optimism proved short-lived.

Valuation concerns, along with a Fed signalling a cautious tone ahead of next month’s meeting, weighed on global Stocks. MTD, the S&P 500 and Nasdaq 100 are down 3.5% and 6.3%, respectively, and are on track to print textbook monthly bearish engulfing candles. Digital currencies, and even traditional safe-havens – such as Spot Gold – were also caught up in the synchronised downswing.

December’s Fed dilemma
Even before the Fed’s meeting minutes were released last week – a report that noted support for a cautious approach – expectations for a pause in policy easing had already dramatically increased. This commenced following Fed Chairman Jerome Powell characterising additional easing for December as ‘far from a foregone conclusion’ at the October meeting.

You may recall that it was only a month ago that markets all but fully priced in a 25-bp cut in December. The odds increased further following the release of the September US payrolls data, which revealed a robust upside surprise in the headline number (albeit concentrated in a few sectors), and unemployment rose to 4.4% from 4.3%. However, as of writing, there is now about a 60% chance that the Fed will reduce the target rate.

As has been well documented, the Fed is stuck between a rock and a hard place concerning its dual mandate. Inflation remains above the central bank’s 2.0% target, with the jobs market weakening. The record-breaking US government shutdown did little to help matters, delaying key data, such as the September jobs print, and prompting the BLS to shelve October’s report, leaving the Fed without official numbers before its meeting next month.

The USD, as measured by the USD Index, has rallied since bottoming in mid-September at 96.22 and has recently traded above the 200-day SMA. This was helped by easing expectations of Fed rate cuts, with the front-end of the US Treasury yield curve losing ground so far this month.

The week ahead: UK Chancellor faces second budget test
UK Chancellor Rachel Reeves will be in the spotlight on Wednesday, delivering an Autumn Budget aimed at reducing the debt burden plaguing the country’s finances. This marks her second Budget since Labour came into power last year and comes with increased uncertainty.

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Publication date:

24 November 2025 - 10:25 (GMT)

From a shambolic and rare pre-Budget speech to a handful of U-turns, it is widely expected that Reeves will give herself more breathing space on her self-imposed fiscal rules. Nevertheless, specifics remain thin at this time.

The combination of an OBR productivity downgrade, policy reversals, and rising borrowing costs has eroded the wafer-thin £9.9bn fiscal headroom, forcing the Chancellor to come up with an estimated £20 – £30 billion in measures without tanking economic activity.

With plans to raise headline income tax potentially shelved, it is anticipated that the tax threshold will be further extended, which is a tax in and of itself. Changes to capital gains and property taxes will likely be included in the Budget, with limited cuts to spending plans. To soften the blow, keep an eye on the possibility of VAT removal from household energy bills and the perennial extension of the fuel duty freeze.

It goes without saying, Reeves has quite the task ahead! As we already know, GDP growth is meagre, inflation remains elevated, and the jobs market is cooling, with the BoE expected to cut rates by 25 bps to 3.75% from 4.00% next month. As for the GBP heading into the event, we have seen the currency weaken amid expectations of a BoE rate cut, with buyers and sellers squaring off between US$1.3000 and US$1.3200 for GBP/USD.

If Reeves pushes ahead with a combination of tax rises and spending cuts, this could increase the odds for more rate cuts next year and further weigh on the GBP. This is because fiscal tightening could hamper economic activity and reduce inflation, essentially greenlighting additional policy easing.

Undoubtedly, traders will be closely watching the GILT market. Earlier this month, the reports of the income tax U-turn sent UK GILT yields higher. If the government does not implement a broad tax increase, this will increase uncertainty and likely steepen the yield curve – expectations of a BoE rate cut will weigh short-end rates down, and the long-end will remain elevated on fiscal credibility concerns.

RBNZ approaching its terminal rate?
Before the UK budget makes the airwaves, the RBNZ will claim some of the spotlight on Wednesday, with markets expecting the central bank to push forward with a 25-bp rate reduction. This would lower the Official Cash Rate (OCR) from 2.50% to 2.25%, and follow the bumpier 50-bp cut delivered in October.

Leading up to the announcement, New Zealand’s CPI inflation data for Q3 25 YY revealed an increase to 3.0% from 2.7% in Q2. This is not only the highest value since 2024 but also the upper bound of the central bank’s 1.0% – 3.0% inflation target band, and it was in line with the RBNZ’s August MPS forecast. On the jobs front, the labour market remains loose, with unemployment rising to 5.3% in Q3, in line with market and central bank estimates. Job growth remains flat, along with depressed vacancies, and economic activity continues to contract; therefore, the rationale for cuts is there.

We will also get our hands on updated economic projections – found on page 41 of the bank’s MPS – with OCR projections expected to be revised lower.

In terms of tradeable scenarios, should the RBNZ cut by 50 bps again – unlikely – this would catch many off guard and create sizeable moves to the downside in the NZD. However, the downside move would likely be short-lived, as the OCR would then be at 2.00% and perhaps mark the end of the easing cycle. This would, of course, be made clearer from the central bank’s accompanying language. Another scenario that will likely be NZD-negative is dovish messaging alongside the 25-bp cut; then we can expect the AUD/NZD cross to catch a bid, for example.

In the event of a hold scenario – again, unlikely – that could prompt an NZD bid and weigh on the AUD/NZD. We also have to account for the possibility of an expected 25-bp cut and a strong hawkish one-and-done message that the easing cycle is at its end; this would be bullish for the NZD.

That’s it from me; have a wonderful week!

Written by FP Markets Chief Market Analyst Aaron Hill