The pound experienced a slight decline against a stronger U.S. dollar on Thursday, as market attention turned toward upcoming key inflation data from the United States, alongside a European Central Bank policy meeting. Additionally, both the Federal Reserve and the Bank of England are scheduled for meetings next week, which adds to the uncertainty in financial markets.
By around 1000 GMT, sterling was down 0.2%, trading at $1.3505. The currency also fell 0.1% against the euro, reaching 86.545. This drop follows a recovery from a one-month low that sterling hit earlier in September, which was influenced by a sell-off in long-dated government bonds. As bond yields surged to their highest levels since the late 1990s, concerns over the UK’s public finances have intensified.
The pressure is particularly mounting on Finance Minister Rachel Reeves, who faces the task of managing Britain’s budget deficit with the next budget announcement scheduled for the end of November. According to Russ Mould, investment director at AJ Bell, the rising government borrowing costs, indicated by increased yields on gilts (UK government bonds), will compel Reeves to devise a tax-and-spending strategy that satisfies bond market investors.
In her efforts to stimulate growth, Reeves expressed intentions to reform business property taxes, aiming to facilitate expansion for smaller firms. This initiative is part of a broader strategy to enhance the economic landscape amidst ongoing fiscal challenges.
The Bank of England’s monetary policy committee is set to meet next Thursday to make its latest rate decision. Current money market forecasts suggest a steady interest rate of 4%, as the central bank navigates the complexities of the economic environment.
In another indicator of the market’s state, a survey revealed that British house prices in August recorded the most extensive declines seen in over a year and a half, reflecting the ongoing headwinds in the real estate sector.
