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Is the pound about to nosedive again?
The Bank of England’s interest rate decision forms the crux of a crucial day for the pound and is the last significant milestone before the autumn Budget. Predictions are split between a hold and a quarter-point cut, with the votes expected to tally six in favour of a hold and three in favour of a cut. Regardless, it feels very much like a decision that could go either way.
Whatever Andrew Bailey and co decide, it will have broad implications for both the pound and the chancellor. On Wednesday, Rachel Reeves made sure the electorate and financial markets were crystal clear that tax rises were coming. We’ll still have to wait three weeks to see exactly what she has in mind.
Was Reeves too honest in her warning? M&S boss Stuart Manchin certainly thought so, arguing that his customers were more concerned now about the Budget than they had been before the speech. UK bond yields meanwhile climbed and prices fell as investors assessed the negative impact of taxes on economic growth.
The American services sector recorded its strongest expansion since February, with the ISM services PMI beating forecasts of 50.8 to come in at 52.4 last month. Price pressures increased amid higher tariff costs, and while the impact of the government shutdown was cited as a dampener on activity, “there was no indication of widespread layoffs or reductions in force”, the Institute for Supply Management said.
The US Supreme Court heard arguments around President Donald Trump’s sweeping tariff agenda yesterday. The majority-conservative justices appeared skeptical as to the legality of the trade war, although we will have to wait some time before the final decision comes down.
Staying in the United States, Wednesday brought triumphs in New York City, New Jersey, Virginia and California for the Democrats. While morale-boosting, those elections do nothing to dislodge a sizeable legislative majority for the Republicans.
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GBP: Settling in for midday
Sterling held its own for the most part on Wednesday, trading sideways against the US dollar and euro after several days of weakness. Bank policymakers have the power to shake things up this lunchtime and the pound could move substantially between now and the end of the day.
GBP/USD: the past year
EUR: Multi-month highs, multi-month lows
The euro is in a curious position at the moment, trading very strongly against the pound but coming under new pressure from a resurgent US dollar. As the graph below shows, you’d have to go back several years to find a better euro to pound rate.
GBP/EUR: the past year
USD: A boost from services
Wednesday’s services data put the kibosh on some of the more extreme warnings about the impact of the shutdown. The services sector’s expansion was a good sign after some less positive manufacturing data from earlier this week.
EUR/USD: the past year
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