Pound's Struggles Amid Political and Economic Waves

The pound faces its steepest four-week decline in over a year due to political and economic uncertainty. With the Labour government poised to announce a significant budget, investors are cautious. Finance Minister Rachel Reeves plans to adjust debt measures, aiming for growth without destabilizing markets.

The British pound is facing its most significant four-week decline in over a year amid turbulent political and economic conditions. As investors seek refuge in the dollar, the pound remained steady on Friday, with Sterling traders bracing for the Labour government's inaugural budget announcement scheduled for October 30.

Finance Minister Rachel Reeves announced changes in the measurement of public debt, enabling increased borrowing for investments. These updates led to a rise in gilt yields but had a minimal effect on strengthening the pound. Reeves emphasizes the need for borrowing flexibility within budgetary rules, aiming for growth yet maintaining investor confidence.

Kathleen Brooks, XTB's research director, stresses the critical nature of this budget concerning market reactions. The backdrop includes a weakening pound and elevating bond yields, signaling potential fiscal implications. The gap between 10-year UK and German debt escalates, highlighting concerns over bond market stability. UK business activity surveys indicate a dampened economic outlook, contributing to the pound's sluggish performance.

(With inputs from agencies.)