FX.co ★ Sterling Strengthens Ahead of Budget

The British pound rose to $1.318 as investors eagerly anticipated Chancellor Rachel Reeves's significant budget announcement. Reeves is set to announce various tax hikes targeting the wealthy to address a £20 billion fiscal shortfall. This comes after enduring weeks of political pressure from Labour MPs and leadership challenges concerning Keir Starmer. In her budget, Reeves faces the delicate task of balancing her party's demands while assuring gilt investors, who have been requiring increased premiums on UK debt. Her strategy is expected to generate £15–20 billion in fiscal capacity, with the market's main interest lying in the credibility of her plan. Recent statistics highlight the complexity of her challenge: borrowing levels are at a record high when excluding the pandemic, business activity has reached a standstill, retail sales have dropped markedly, and consumer confidence has weakened. On a brighter note, inflation has decreased to 3.6% in October, raising the likelihood of the Bank of England reducing interest rates next month. The market now predicts an 80% likelihood of a 25-basis-point rate cut in December.