British Pound trims losses but remains below 1.3300 with all eyes on the UK budget

GBP/USD picks up from two-week lows at 1.3275 but remains below 1.3300, on track for a four-day reversal.
Investors remain wary ahead of the release of UK Chancellor Healey's budget.
In the US, the Fed is expected to leave interest rates on hold, and investors will be attntive for hints of a December hike.

The British Pound (GBP) is heading south against the US Dollar (USD) for the fourth consecutive day on Wednesday, with investors awaiting the release of the UK budget and the US Federal Reserve’s (Fed) monetary policy decision, both due later in the day. The GBP/USD pair has reached a fresh two-week low at 1.3275, before picking up to 1.3295 at the time of writing.

TMGM tahlili: Moliyaviy bozor yangiliklari, iqtisodiy kalendar va bozor tahlillari

In the UK, the highlight of the week is the release of the first budget of Prime Minister Andy Burnham’s cabinet, with the main focus on the plans to finance the tax exemptions announced by the cabinet to ease British citizens’ cost of living.

Markets remain wary, with the UK’s public finances strained as total public debt surpassed GBP 3 trillion in September, amid a significant increase in net borrowing. The previous chancellor, Rachel Reeves, left a GBP 23.6 billion buffer, but the surge in debt costs is likely to have eaten up approximately half of it. With bond markets jumpy, and the 2022 Liz Truss fiasco still fresh, the details of Chancellor Healey’s budget are likely to trigger some Pound volatility.

Dollar support seen as focus shifts from AI jitters to FOMC risk

In the US, the Fed is widely expected to leave interest rates on hold, but the question is whether Chairman Kevin Warsh will support market expectations of another rate hike in December, considering his distaste for forward guidance.

Strategists at ING note that “a little stability on the AI side has allowed the FX market to re-focus on the clearer and more present danger of higher energy, higher inflation and the central bank response,” which is boosting speculative demand for the Greenback.

Regarding the Fed, ING states that they “suspect Chair Warsh will not want to tie himself in knots by citing a tightening in financial conditions, having learnt from the unruly market response to his press conference in July.” Instead, they expect that a “focus on restoring monetary stability should remain the dominant message and keep the dollar supported.”

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).

Economic Indicator

FOMC Press Conference

The press conference is about an hour long and has two parts. First, the Chair of the Federal Reserve (Fed) reads out a prepared statement, then the conference is open to questions from the press. The questions often lead to unscripted answers that create heavy market volatility. The Fed holds a press conference after all its eight yearly policy meetings.