The Pound Strengthens Slightly, But Is There a Time Bomb in the UK Budget?
The GBP/USD pair briefly rose to around 1.3180 in the latest session after previously dropping to the 1.3135 area. However, its movement is still "circling" in the same range as the past few weeks. This is because market participants are still haunted by concerns about the state of the UK's public finances and are also hoping that the Bank of England (BoE) will soon cut interest rates, thus restraining the pound's strengthening.
Sentiment has been further shaken by news that PM Keir Starmer and Chancellor of the Exchequer Rachel Reeves have canceled plans for an income tax increase in the November 26 budget. While this news is a relief for taxpayers, it also raises the question: where will the government finance the widening fiscal deficit? Economic data is also unhelpful—preliminary GDP figures show the UK economy actually contracted in the third quarter, with the manufacturing and industrial sectors also weakening. This has made the market increasingly confident that the BoE will be forced to cut interest rates, possibly starting in December.
In the US, the reopening of the federal government has allowed for the release of a series of previously delayed data, including the September Nonfarm Payrolls (NFP) report, due out next Thursday. While awaiting this data, markets remain cautious, while diminishing expectations of a Fed rate cut in December provide some additional support for the US dollar. This combination of pressure from the UK and supportive factors from the US is what has traders now wondering: will GBP/USD finally break out of its "sideways wobble" pattern, or will it become increasingly squeezed between two central banks? (Asd)
Source: FXStreet
