The Pound strengthened against a broadly weaker Dollar on Wednesday after Chancellor Rachel Reeves confirmed that tax increases and spending cuts are forthcoming, while investors remained focused on the Bank of England’s interest rate outlook.
Sterling rose 0.2% against the Dollar to $1.3349 and gained 0.1% versus the Euro to 87.15 pence.
The Pound also drew support from broader Dollar weakness, as markets viewed comments from Federal Reserve Chair Jerome Powell on Tuesday as dovish, improving overall risk sentiment.
On Wednesday, Reeves said she was considering both tax increases and spending cuts for the upcoming 26th November budget, confirming expectations aligned with her commitment to balance the nation’s finances.
The Pound’s gains against the Dollar in 2025 may prove harder to sustain, weighed down by concerns over the UK’s fragile fiscal position.
Analysts said selling momentum in the short-Dollar trade appears to be fading, suggesting the Pound could retreat toward the 1.30 support level ahead of the Budget. They added that markets may later be surprised by fiscal tightening measures that turn out to be stronger than currently anticipated.
The Pound has eased from its July high of $1.3787 but remains 6.8% higher against the Dollar so far in 2025, Reuters reports.
Markets are still assessing Tuesday’s data showing a slight slowdown in average UK earnings growth over the three months to August, a trend that could allow the Bank of England to proceed cautiously with further rate cuts.
However, British inflation, projected to remain the highest among the Group of Seven advanced economies this year and next, has drawn significant attention.
The IMF’s chief economist warned on Tuesday that the Bank of England should proceed very cautiously with any further rate cuts.
Money markets currently assign an 87% probability that the BoE will keep rates unchanged at its upcoming meeting on 6th November.