The Pound Sterling (GBP) remains under pressure on Thursday, lagging behind its major currency counterparts as investors grow increasingly cautious about the United Kingdom’s economic outlook ahead of the Autumn Budget, scheduled for late November.
On Wednesday, UK Chief Secretary to the Treasury James Murray reaffirmed the government’s commitment to fiscal restraint, stating that departments would not be permitted to use emergency funds for pay increases in order to curb a potential wage-price spiral. “This prudent but tough approach to public spending is what will help build a stable economy,” Murray wrote in a letter released by the finance ministry, according to Reuters.
This highlights the government’s determination to adhere to fiscal discipline and maintain the rules outlined in the 2024 budget. However, market participants now expect the Treasury to either reduce public spending, raise taxes, or implement a mix of both to contain ballooning fiscal borrowing. Concerns over the UK’s debt levels intensified in July after Chancellor of the Exchequer Rachel Reeves announced higher welfare spending.
On the monetary policy front, investors remain divided over whether the Bank of England (BoE) will deliver another rate cut in its two remaining meetings this year. The uncertainty stems from weakening labor market demand and persistently high inflationary pressures.
BoE Chief Economist Huw Pill emphasized in a speech at the University of Birmingham that monetary policy should remain vigilant to prevent inflation from regaining momentum.
The next key event for the Pound will be the UK employment data for the three months ending in August, due for release on Tuesday.
GBP Extends Losses Against the US Dollar; Powell’s Remarks in Focus
The Pound continues to decline for the third consecutive session against the US Dollar (USD) on Thursday, with the GBP/USD pair slipping toward 1.3365 as the US Dollar Index (DXY) rebounds from recent lows.
During the European session, the DXY recovered to near the 99.00 mark—its highest level in two months—after briefly dipping to 98.70. The Greenback’s three-week rally had faced mild profit-taking following the release of the Federal Open Market Committee (FOMC) minutes from the September meeting.
The minutes revealed that policymakers remain confident about the possibility of further rate cuts amid signs of labor market weakness. Officials also expressed relief that inflationary risks have eased or, at the very least, not worsened.
The report indicated that officials believe it would likely be “appropriate to ease policy further over the remainder of 2025.” According to the CME FedWatch Tool, traders now assign a 78.6% probability of two 25-basis-point rate cuts in the remaining FOMC meetings this year.
Market participants now await a speech from Federal Reserve Chair Jerome Powell at the Community Bank Conference in Washington at 12:30 GMT, seeking insights into how the ongoing US government shutdown might influence the Fed’s outlook on growth and monetary policy.