FX.co ★ Sterling Edges Down, Set for Best Week in Over 3 Months

The British pound declined to $1.322 on Friday; however, it posted an approximate 1% increase for the week, marking its most significant rise since early August. This movement followed investors' reactions to the government's newly announced budget. Earlier in the week, Finance Minister Rachel Reeves unveiled her much-anticipated budget and defended it against criticisms concerning increased spending and the decision to elevate the tax burden to its highest level since World War II. The budget aims to generate £26 billion in additional taxes to bolster welfare programs. While investors largely welcomed the budget's indication of more disciplined borrowing, the subdued market response suggested much of the expectation was already factored in. Furthermore, part of the sterling's appreciation likely resulted from traders reversing hedges placed prior to the announcement. Looking forward, the pound may encounter limited upward momentum, given its diminishing yield advantage and potential forthcoming rate cuts from the Bank of England. The central bank maintained unchanged interest rates in November, and decreasing inflation has heightened expectations of a rate cut in the coming month.