The Pound sterling was slightly higher against the US dollar on Tuesday, rising 0.03% to $1.2984. This performance reflects the cautious mood in the market ahead of tomorrow’s much-anticipated Autumn Budget.
UK employment data is expected to be absent from Tuesday’s calendar, which could lead to further weakness in the pound ahead of the Budget. Meanwhile, the latest release of US JOLT job openings is likely to be the main catalyst for exchange rate moves during the day.
Despite expectations of a slight decline in new job creation, the index should remain close to the strong levels seen in August, which could boost the US dollar. The CB Consumer Confidence Index could also provide further support to the dollar if it posts a positive reading reflecting a rise in American sentiment.
On the Budget front, Chancellor Rachel Reeves is expected to unveil plans to raise taxes and boost public spending, a strategy that Sir Keir Starmer outlined during his speech in Birmingham. The Prime Minister warned of the need to take “difficult decisions” to raise taxes, stressing the importance of this approach to avoid austerity and improve public services.
There is no concern about political risk in sterling’s valuation yet, one strategist explained. With investors expected to be bullish on sterling futures, these dynamics could change quickly in the event of any disappointment in the budget.
At the same time, sterling remains vulnerable ahead of the budget and the upcoming US elections. Investors will be watching the details of the spending plans, given their potential impact on the Bank of England’s interest rate path, which a recent poll suggests is ready to cut interest rates by 25 basis points at its next meeting on November 7.
Analyzing the Pound sterling Rally and the Impact of the Upcoming Budget
The Pound sterling has seen a notable rise today, supported by lower energy prices which have helped reduce support for the US dollar. This shift in financial markets occurs at a crucial time, as participants continue to debate the UK budget announcement on Wednesday and consider global economic developments affecting all major economies.
According to Scotiabank’s forecast, Chancellor Reeves is expected to ease fiscal policy slightly. If she can make these adjustments while maintaining investor confidence, the pound is likely to make further gains. These developments signal a positive outlook for the currency’s future, providing more room for investment and economic growth.
In the context of the budget, the government announced an increase in National Insurance contributions for employers, and there are expectations of changes to inheritance tax and capital gains tax, while tightening current fiscal policy. These changes are aimed at improving economic conditions and boosting government revenues.
In addition, the government will transform the fiscal rules, which will allow for an increase in borrowing by £50 billion to invest in development projects. These measures will directly impact growth and inflation, which will in turn influence the Bank of England’s policy.
In this context, Andrew Wishart, chief economist at Berenberg, commented that the new policies will come after a significant increase in the minimum wage. He added that expectations of a strengthening in domestic demand in 2025 could see these costs passed on to consumers in the form of higher prices, boosting inflation levels. This data suggests that inflation concerns may influence the Bank of England’s support for interest rate cuts, which will further complicate the economic landscape.
GBP/USD: Economic Data Challenges
Currently, the GBP/USD pair is trading at $1.2984. The Pound sterling (GBP) is facing significant challenges in attracting investors, especially after the release of disappointing local data on Monday. The latest UK distribution trading survey came in below expectations, with the index falling from 4 to -6, instead of the expected rise to 10. This has had a negative impact on the pound’s exchange rate, making investors hesitant to support it.
In contrast, the US dollar (USD) is showing caution ahead of important data releases. Tuesday will see the release of US JOLT job openings data, in addition to CB Consumer Confidence data. Wednesday will see the release of US GDP growth, followed by inflation and employment data on Thursday and Friday.
Forex Market: Economic Data Await
With a large number of economic data expected during the week, the US dollar remained relatively quiet during Monday’s European session. On the data front, the CBI retail sales survey fell to -6 for October, down from 4, with a slight decline expected in November.
With US jobs data and the presidential election set to loom, it will continue to weigh on currency markets. ING commented: “This week will focus on jobs and price data, as well as a comprehensive assessment of economic activity via US Q3 GDP on Wednesday.” The bank expects job openings on Tuesday and October payrolls on Friday to be lower than expected, although natural factors could influence this. “We believe that US data this week will not be enough to push the dollar significantly lower,” it added.
