Sterling stems losses after fiscal plan, budget forecasts brought forward

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LONDON – Sterling fell against the dollar on Monday after Friday’s strong US jobs data supported bets that the Federal Reserve will continue to raise rates aggressively, although it recovered slightly after Britain said it would publish independent budget forecasts this month.

The pound fell to a 10-day low of $1.1027 but was last 0.12% lower against the dollar at $1.1077, recovering after the Treasury said that Britain will publish its medium-term fiscal plan and independent budget forecasts on 31 October.

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The government was due to set out the plan, which is based on a mini-budget in September, on November 23, but markets reacted badly to the September announcement and the lack of independent forecasts to go with it, leading to pressures to carry them forward.

The euro fell 0.2% against the pound to 87.66 cents.

The Bank of England was also in focus as, later this week, it is due to end its emergency purchase program launched last month to ease turmoil in the government bond market, which also the September mini-budget followed.

On Monday, the central bank moved to ease concerns by announcing a doubling of the maximum size of its debt buyback planned for Monday and launching a temporarily extended collateralized repo facility to help banks ease liquidity pressures that face client funds caught in the turmoil that threatened pensions. background

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“(The latter) is an aspect to note as it should protect liquidity conditions beyond the next meeting. We believe this could be seen as the Bank laying the groundwork for a major interest rate announcement at November, which could lead to some market dysfunction in the absence of these measures,” said Simon Harvey, head of currency analysis at Monex Europe.

The British currency has had a volatile few weeks, falling to an all-time low of $1.0327 in late September after markets were hit by a series of unfunded tax cuts announced by the British government, before recovering up to $1.1028 last week.

The pound may weaken further against the dollar this week for two reasons, said Carol Kong, currency strategist at the Commonwealth Bank of Australia.

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“First, we expect the USD to rise because US inflation may reinforce that the FOMC will not pivot on rate hikes anytime soon,” he said. “Secondly, the national data will reinforce that the UK economy is slowing down.”

He also noted that there was little technical support for the greenback up to $1.0702.

US inflation data is due on Thursday and a high level combined with last week’s strong US jobs data would mean the US Federal Reserve will continue to raise rates aggressively, which has greenback increased.

Meanwhile, in Britain employment data is due on Tuesday and GDP figures on Wednesday. (Reporting by Alun John Editing by Ed Osmond)