By Noam Bennaiche
The Pound has faced another challenging trading session, with Sterling hovering near recent lows against both the Euro and the Dollar. Confidence in GBP remained fragile ahead of today’s inflation figures. However, the rates were holding steady despite softer US data and rising expectations of Federal Reserve rate cuts, with UK inflation and the forthcoming Autumn Budget now in sharp focus.
The US Department of Labour reported that Initial Jobless Claims for the week ending October 18 rose to 232,000, while continuing claims increased to 1.957 million. Investor sentiment toward the UK is being weighed down by ongoing political uncertainty. This morning’s UK inflation data was seen as a key driver for markets.
UK CPI inflation eased to 3.6% year-on-year in October from 3.8% in September, though it was forecast to fall slightly further to 3.5%. If Eurozone inflation also prints on the softer side, the Pound may experience some temporary relief, although expectations suggest Euro-area inflation will remain broadly stable at around 2.4%. The Euro is meanwhile under pressure from a firmer US Dollar.
The Bank of England’s cautious stance, combined with growing speculation over future rate cuts, continues to cloud the outlook for Sterling. As the Autumn Budget approaches, volatility is likely to increase, and further downside risks cannot be ruled out. With the UK budget set for November 26, Britain’s financial markets are bracing for a pivotal moment. The performance of bonds, equities, and the Pound will largely hinge on whether Chancellor Rachel Reeves can navigate the delicate trade-off between tightening the public finances and fostering economic growth.
Despite political headwinds and global uncertainty, the US dollar remains resilient against both GBP and EUR ahead of Thursday’s Non-farm Payrolls report. Any significant shift in Dollar strength this week could easily influence Sterling, given its heightened sensitivity to market movements.
If you have upcoming currency exposure, it may be worth speaking with your consultant. Those looking to purchase Euros or Dollars may wish to consider forward contracts to help manage risk, and protect against further potential weakness in the Pound.