Pound US dollar (GBP/USD) exchange rate slumps amid UK budget worries and US political uncertainty
(Updated 14:45, 22/10/24) The pound US dollar (GBP/USD) exchange rate extended this morning’s losses this afternoon, with the pairing sliding to a two-month low of $1.2948.
The downside comes as the pound (GBP) faces pressure following the latest UK borrowing figures. Last month was the third-highest September on record for public borrowing, with government spending outstripping revenue by £16.61bn in the year to September.
This has stoked anxieties ahead of the Autumn Budget next month, as the Treasury prepares to unveil a ‘painful’ combination of tax rises and spending cuts.
Meanwhile, ‘Trump trade’ is causing some volatility. Market odds for a Donald Trump victory in next month’s US presidential election have shot above 60%, although political polls show his rival Kamala Harris with a narrow lead.
Some analysts believe Trump’s protectionist policies could lead to higher inflation in the US, and therefore fewer Federal Reserve interest rate cuts. This has fuelled some risk aversion and lifted the US dollar (USD) today.
At the time of writing, GBP/USD is trading at a two-month low of $1.2948, down more than 0.2% on the day.
Original article continues below:
Pound US dollar (GBP/USD) exchange rate pressured by UK budget fears
The pound US dollar (GBP/USD) exchange rate stumbled as this morning’s European session started, with the pairing slashing its overnight gains, as worries ahead of the UK Autumn Budget pressured Sterling.
At the time of writing, GBP/USD is trading at $1.2989, having given up the gains it made overnight amid a risk-on mood.
Pound (GBP) struggles as UK borrowing rises
The pound (GBP) is under pressure this morning after the UK’s latest borrowing figures raised concerns ahead of next week’s Autumn Budget.
Public sector borrowing exceeded forecasts last month, swelling from £13.5bn to £16.6bn, and well above forecasts of £10.3bn.
Cara Pacitti, Senior Economist at the Resolution Foundation, highlights the difficulty facing Chancellor Rachel Reeves:
‘Six months into the financial year, Britain is borrowing £6.7bn more than expected at the time of the Budget in March. This reflects central government spending which is £11.5bn higher than anticipated, largely due to public sector pay rises and higher running costs.
‘Today’s data highlights the scale of the public finances challenges facing the Chancellor as she grapples with overspending today, the need to avoid austerity in the future, and having to fund extra public service spending through tax rises.’
Concerns about the public purse and the ‘painful’ budget ahead are pressuring the pound this morning.
US dollar (USD) buoyed by risk-off mood
Meanwhile, the US dollar (USD) is recouping its overnight losses as a souring market mood supports the safe-haven currency.
A risk-on mood overnight saw USD relinquish some of yesterday’s gains against GBP, but markets are back in the red today.
Anxiety over the escalating Middle East crisis seems to be driving the risk aversion. With no ceasefire in sight, and an Israeli attack on Iran seemingly imminent, most analysts expect the conflict to only get worse.
GBP/USD exchange rate forecast: BoE Bailey speech in focus
Looking ahead, a speech from Bank of England (BoE) Governor Andrew Bailey could weigh on the pound this afternoon, if he hints at more interest rate cuts from the British central bank.
At the beginning of the month, Bailey triggered a sharp decline in the pound. In an interview with the Guardian he said that the BoE could become ‘a bit more aggressive’ in reducing rates, if inflation cools faster than forecast.
Since those remarks, the UK’s latest consumer price index undershot expectations. September’s CPI, published last week, saw headline inflation drop from 2.2% to 1.7%, beneath forecasts of 1.9% and below the BoE’s 2% target.
Any signs that last week’s data has nudged Governor Bailey in favour of a more ‘aggressive’ approach to interest rate cuts could see Sterling slump. Conversely, if Bailey brushes off the CPI reading and argues that more evidence is needed, GBP could gain ground.
For the US dollar, economic data is thin on the ground. Therefore risk appetite may drive most movement in the safe-haven ‘greenback’.