The British pound (GBP) has experienced a muted trading environment recently, with concerns regarding the upcoming autumn budget adding pressure. Analysts noted that the potential abolition of the two-child cap on child benefits has stirred fears about how Chancellor Rachel Reeves will finance government commitments, thus creating a growing risk premium for investors.
On October 1, a significant uptick in GBP against the U.S. dollar was observed, attributed to investor caution surrounding a government shutdown in the United States. This scenario has raised concerns about the potential delays in key economic data that influences Federal Reserve monetary policy decisions. Despite recent data showing stagnation in the UK economy and a widening current account deficit, market sentiment has been more affected by developments from the U.S.
Current statistics show GBP to USD at 1.3432, just below its 3-month average, trading within a stable 3.4% range from 1.3206 to 1.3655. Meanwhile, GBP to EUR is at 1.1467, sitting only 0.5% below its 3-month average of 1.1525, reflecting a tight 1.7% trading range. Additionally, GBP to JPY has reached near 90-day highs at 200.9, slightly exceeding its 3-month average of 199.
As the week progresses, currency market participants are keeping a close eye on upcoming comments from Bank of England Governor Andrew Bailey. A hawkish stance in his speech could provide much-needed support for the pound as market players head into the weekend. Nevertheless, challenges persist with real wage growth slowing, high inflation, and ongoing concerns about affordability amplifying pressure on the British consumer.
