Sterling on the 'back foot' amid 'budget jitters'
The total absence of tier-1 economic data releases out of the UK this week means that focus is almost exclusively on next month’s budget. Chancellor Reeves is now the latest senior Labour MP to be embroiled in a scandal after the news broke that she was renting a property of hers without the appropriate license.
While this has somewhat overshadowed lingering fears over the details of the Autumn Budget itself, it is not exactly ideal preparation for what may end up being a make-or-break budget for not just the chancellor, but the Labour Party, which continues to lag well behind Reform in the latest polls.
A combination of budget jitters and rising bets in favour of a December rate cut from the Bank of England have kept sterling firmly on the back foot so far this week, with the pound slumping towards the 1.31 level on the dollar yesterday, and to its lowest level on the euro since May 2023.
Swap markets see around a 2-in-3 chance that the MPC lower rates again before year-end, but that could rise should sizable tax hikes dampen the outlook for UK growth.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
