Pound holds firm against Euro, while Autumn Budget remains 'the key risk' for gilts and Sterling

Sterling was one of the more resilient currencies last week, trading roughly flat against the dollar and up to a two-month high against the euro, as the debacle in the French bond markets made British assets look comparatively safe.

That resilience was only relative, however, as we saw another leg down in gilts, with the 30-year yield touching 6% for the first time since 1998 - a move that will continue to eat into the Labour government’s fiscal headroom ahead of the highly anticipated Autumn Budget at the end of the month.

The pound also continues to be well supported by resilient domestic data, with last week’s revised GDP figures showing that the UK economy grew at a faster pace than initially anticipated in the second quarter. While we still contend that a slowdown appears likely in the coming months, the stubbornness in demand in spite of downside risks is nonetheless commendable.

There is little UK data to watch this week, so attention turns to the run-up to the 28th October budget, which is the key risk for both gilts and the pound. The EUR/ GBP cross rate will, however, highly likely remain wholly dependent on developments in France.