Sterling was muted against the dollar on Tuesday, trading just 0.03% higher at $1.2972 at the time of writing, reflecting a cautious market sentiment ahead of the autumn budget.
Chancellor Rachel Reeves is expected to unveil plans to raise taxes and boost public spending, a strategy hinted at by Sir Keir Starmer during his speech in Birmingham on Monday. The prime minister warned about the necessity of making “tough decisions” to raise taxes, adding that this approach was crucial to avoid austerity measures and to help rebuild public services.
ING strategist Francesco Pesole said there was no political risk premium priced into the pound right now, while speculators are sitting on a fairly substantial bullish position in sterling futures, which could quickly get unwound if there is any disappointment stemming from the budget.
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“Sterling continues to look vulnerable ahead of tomorrow’s budget event and next week’s US election, and risks remain skewed to a move to $1.2800-1.2850,” he said.
Investors will be monitoring the forthcoming spending plans, given their potential impact on the Bank of England’s (BoE) interest rate trajectory. A recent poll conducted by Reuters suggested that the BoE is poised to cut interest rates by 25 basis points to 4.75% in its upcoming meeting on November 7.
This would represent the central bank’s second interest rate reduction of the year, following its decision to maintain the key borrowing rate at 5% during its last policy meeting in September.
Against the euro (GBPEUR=X), sterling was also muted, trading at €1.1996.
Gold prices remained near record highs on Tuesday, buoyed by uncertainty surrounding the upcoming US presidential election as investors seek insights into the Federal Reserve’s interest rate direction.
Spot gold was up by 0.2% at $2,749.26 per ounce, while US gold futures rose 0.3% to $2,763.40.
“The lead-up to the upcoming US elections may continue to offer traction for its status as a hedge against market turbulence, further supported by a temporary breather in the US dollar and Treasury yields overnight,” said IG market strategist Yeap Jun Rong.
“While stronger economic data may support more patience in Fed’s easing process, we may expect gold prices to stay supported, with rate expectations well-anchored around a smaller 25 basis points in November.”
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