Pound unfazed by budget date, set for best monthly showing since April
Sterling’s Performance and Market Reactions
By Shashwat Chauhan
Monthly and Weekly Performance of the Pound
July 31 (Reuters) - The pound was set for its best monthly performance since April against the dollar and euro on Friday, showing little immediate reaction to news that the next UK budget will be brought forward.
British finance minister John Healey said he will hold his first budget on October 28, as he pledged to stick to the borrowing rules he inherited from his predecessor Rachel Reeves.
Recent Movements Against Major Currencies
Sterling was last down 0.3% against the dollar at$1.342, but was still headed for a weekly gain. It was also set for a more than 1% jump for the month, clocking gains after two straight months of declines.
It inched 0.2% higher against the euro on the day, but was set for a second straight month of gains.
Impact of Global Currency Movements
Sterling's moves were mostly driven by price action in other major currencies a day after Japanese authorities were suspected of yen-buying market intervention.
Sterling dipped 0.5% against the yen, down for the second straight day.
The U.S. Treasury has informed a number of banks that it may intervene in the Japanese yen market on Friday and that they should "stand ready for future action", sources familiar with the matter told Reuters.
UK Budget and Economic Outlook
Market Focus on UK Fiscal Policy
Still, attention was returning to the UK outlook after the UK budget date announcement.
Traders will be watching the budget closely for clues on how the UK's new prime minister and finance minister will boost economic growth without endangering stretched public finances.
Prime Minister’s Fiscal Commitments
Prime Minister Andy Burnham, who moved into Downing Street less than two weeks ago, has said he will honour the fiscal rules which include a pledge to balance day-to-day spending with tax revenues by the end of the decade.
Economists say the government has only a small margin of error for hitting that target and some of Burnham's policy priorities — such as extra defence spending and better social care — will put more strain on the public finances.
Bank of England Policy and Market Expectations
Some analysts say easing pressure on the Bank of England to hike rates is a positive for UK borrowing costs although that could weigh on sterling.
On Thursday, the BoE kept rates on hold as it waits for a keener sense of how much the U.S.-Iran war will push up inflation.
Money markets price in at least one 25-basis-point rate increase by the year-end.
Analyst Commentary
"The Bank of England managed to comfort markets about the inflation trajectory, in line with our own economists' views. This should give the BoE more time to hold the policy rate," ING analysts said in a note.
(Reporting by Shashwat Chauhan in Bengaluru; Editing Dhara Ranasinghe and Arun Koyyur)
