The British pound (GBP) has recently experienced a period of volatility as concerns over the UK government’s fiscal policies have weighed on its performance. On Thursday, the pound remained muted, with analysts noting increased risk premiums ahead of Chancellor Rachel Reeves's upcoming autumn budget. Speculations regarding potential changes to child benefits have heightened worries about how the government will finance its commitments, thus dampening investor sentiment.
Recent economic indicators have provided mixed signals for the GBP. Data showing stagnation in the UK economy and a widening current account deficit have raised eyebrows, yet markets have remained more focused on external factors, particularly the ongoing U.S. government shutdown. Interestingly, despite these domestic challenges, the pound saw a slight uptick against the U.S. dollar, closing near 1.3419, although this level is near a seven-day low and just below its three-month average.
Meanwhile, GBP has shown strength against the Euro, reaching 14-day highs around 1.1518, with stable trading confined within a 1.7% range from 1.1424 to 1.1616. Additionally, GBP to JPY is notable for hitting 90-day highs at approximately 204.3, marking a 2.6% increase above its three-month average, trading within a 4.6% range from 195.4 to 204.3.
As investors look for direction, attention is turned towards Bank of England Governor Andrew Bailey's upcoming speech. A hawkish stance could stimulate demand for the pound as the weekend approaches. However, the backdrop of slowing real wage growth and high inflation poses challenges for consumers, which might limit the pound's upside potential. Overall, market participants should remain vigilant in monitoring both domestic fiscal developments and international influences as they navigate their currency transactions.
