Sterling held steady against the dollar in early European trading on Monday, up just 0.07% to $1.297. The pound hovered around its lowest point since August, as investors geared up for the autumn budget.
Chancellor Rachel Reeves is set to deliver Labour’s first budget in nearly 15 years on Wednesday 30 October.
In a speech ahead of the budget on Monday, prime minister Keir Starmer is expected to warn that it is time to “embrace the harsh light of fiscal reality”.
Both Starmer and Reeves have said that this budget will involve some “tough” decisions, claiming that they have inherited a £22bn “black hole” in public finances from the previous Conservative government.
In Wednesday’s budget, Reeves is expected to announce tax rises to raise funds. However, Reeves also confirmed last week that the government would change the way debt is measured to fund more investment.
Neil Wilson, chief market analyst at Finalto, said: “One thing is sure – it’s going to be painful. I’m not convinced that the market will give the government a thumbs up for being overly statist.
“Hiding behind a technical tweak to debt rules is risky – they will need to make the case for why that money is going to increase growth/productivity.”
Against the euro (GBPEUR=X), the pound was down 0.1%, trading at €1.1988.
Gold prices dipped on Monday morning as the dollar remained strong, as investors looked ahead to economic data releases this week and the US Federal Reserve’s next interest rate decision.
Spot gold was down 0.5% to $2,733.67 per ounce, while gold futures were 0.3% in the red at $2,7545.80.
Investor appetite for gold as a safe haven asset appeared to have shifted, despite uncertainty with the US presidential election next week and continued conflict in the Middle East.
In terms of US economic data releases, the advance estimate of third-quarter gross domestic product figure is due out on Wednesday.
The September personal consumption expenditure (PCE) index – the Fed’s preferred measure of inflation – is due out on Thursday.
The US October payrolls report is then slated for release on Friday.
These data points are key in guiding central bank monetary policy, with the Fed set to announce its latest interest rate decision on 7 November, just two days after the presidential election.
Crude oil prices slid on Monday morning after Israel refrained from targeting Iran’s refining facilities in an attack over the weekend.
Brent crude futures fell more than 5% to $71.93, while US West Texas Intermediate (WTI) (CL=F) also declined more than 5% to $67.74.
Deutsche Bank’s team of analysts said in a note on Monday: “The targeted scope of the attack and the absence of immediate retaliation signal have seen markets price out some of the geopolitical risk premium.”
Israel attacked Iranian military sites with airstrikes on Saturday, in response to ballistic missiles fired at Israel at the beginning of October.
However, the attack avoided Iran’s oil and nuclear sites, giving hope that further escalation in the Middle East conflict could be avoided.
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### Insight into UK Budget
Rachel Reeves is poised to deliver Labour’s first budget in over a decade, showcasing the party’s approach to fiscal policy. Investors are closely watching for indications of economic recovery strategies, especially amid inherited financial challenges.
### Impact on Market Sentiment
The upcoming budget’s focus on tax hikes and debt measurement changes may create uncertainty in the market. Investors, like Neil Wilson, express concerns about the potential outcomes and the government’s ability to justify its economic decisions effectively.
### Geopolitical Developments
The recent events involving Israel and Iran have influenced crude oil prices. The strategic nature of the attacks and the market’s reaction highlight the interconnectedness of global geopolitical tensions and financial markets.
