LONDON (Reuters) -The pound firmed against a broadly weaker dollar on Wednesday, as Britain’s finance minister Rachel Reeves confirmed tax rises and spending cuts are on the horizon, and market focus stays on the Bank of England’s rate path.
The pound was up 0.2% against the dollar at $1.3349 and 0.1% firmer versus the euro at 87.15 pence.
Britain’s currency was benefiting from broad pressure on the dollar, which softened as markets interpreted comments made by Federal Reserve Chair Jerome Powell on Tuesday as dovish, and risk sentiment improved.
Reeves said on Wednesday she was looking at both tax rises and spending cuts for her budget on November 26, confirming widely held expectations given her pledges about balancing the country’s books.
Neil Wilson, UK investor strategist at Saxo Markets, said the pound’s 2025 gains versus the dollar will be tougher to hold on to amid pressure coming from the UK’s precarious fiscal position.
“I’m not sure how many sellers are left in the short USD trade but I would tend to favour a pre-Budget retreat to the 1.30 support before we maybe see some fiscal tightening that is more than the market is expecting,” he said, adding that this could push down yields and weigh on the pound into the year-end.
The pound came off a peak of $1.3787 in July but remains up 6.8% versus the dollar in 2025.
Markets are still digesting Tuesday’s data that showed growth in average British earnings slowed slightly in the three months to August, suggesting the Bank of England may be able to continue cutting rates cautiously.
But British inflation, which looks set to remain the highest in the Group of Seven advanced economies this year and next, has also been under the spotlight.
The International Monetary Fund’s chief economist said on Tuesday that the Bank of England needs to be “very cautious” about future rate cuts.
Money markets are placing an 87% chance of no change at the BoE’s next meeting on November 6.
(Reporting by Lucy Raitano; Editing by Ed Osmond)
