Summary:
On Tuesday, the British pound held a two-and-a-half-year high due to a hawkish BOE, but strategists warn the UK budget could impact sentiment.
The British pound steadied at its highest level in two-and-a-half years on Tuesday thanks to a hawkish BOE, but strategists warn the upcoming UK budget could pose a risk to consumer sentiment.
Many investors are awaiting the new government’s fiscal plan at the end of October, with PM Keir Starmer warning decisions lie ahead that will be "painful" in the short term.
The BOE held rates as the Fed cut them last week. Both actions were expected, but the former stressed the need for "gradual" easing, while the latter opted for a hefty reduction.
Key concerns in the UK remain services inflation and wage growth. CPI rose by 2.2% in the year to August, with higher air fares offset by lower fuel prices, and prices in hotels and restaurants rising more slowly.
Sterling's gains last week built on a longer-term trend, with analysts broadly identifying positives to the increased political stability, and plans to reform housing policy and strengthen ties with the EU.
Labour has repeatedly emphasized that boosting the sluggish economic growth is its top priority though favourable interest rate differentials could be jeopardized by the budget including tax hikes.
The pound is seen to maintain its uptrend with potential key resistance around 1.3500. It could hardly breach 1.3400 before the PCE report due Friday.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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