UK Chancellor Reeves is walking a thin line as she seeks to find a balance between finding the funds to invest for growth while also maintaining the air of budgetary prudence, Rabobank’s FX analyst Jane Foley notes.
GBP is holding up well so far
“To avoid shocking gilt investors too much by the October 30 budget announcements, Reeves has already leaked various parts of her agenda. GBP is holding up well so far, in part because the BoE is less dovish than some other G10 central banks.”
“Meanwhile, a more dovish ECB is undermining the resilience of the EUR. Despite the risks to GBP posed by a change in fiscal policy settings, our central view remains that EUR/GBP will continue to edge lower to the 0.8150 area on a 12-month view.”
“We will revise our USD forecasts in early November and see downside risk to our cable view.”