The Pound Sterling trades modestly higher on Wednesday, rising 0.15% toward 1.3180 against the US Dollar (USD) during the European session. The GBP/USD pair is supported by anticipation surrounding the United Kingdom’s (UK) Budget Report, scheduled for release at 12:30 GMT.
Markets will closely watch the budget to assess how aggressively the Labour government plans to raise household taxes in order to adhere to its self-imposed fiscal rules. According to Reuters, economists expect UK Chancellor Rachel Reeves to unveil tax increases worth £20–30 billion to help address a £22 billion gap in public finances.
Higher household taxes could help reduce fiscal risks, a development that may put downward pressure on UK gilt yields. At the time of writing, 10-year gilt yields are down 0.3%, trading near 4.51%.
On the monetary policy front, expectations for a December rate cut from the Bank of England (BoE) have strengthened. Softer inflation data and ongoing weakness in labour demand have reinforced the view that the BoE may loosen policy sooner rather than later.
Meanwhile, the US Dollar remains under pressure as traders ramp up bets on additional Federal Reserve (Fed) rate cuts this year. The CME FedWatch Tool shows the probability of a 25 basis-point cut in December rising sharply to 84.9%, up from just 30.1% a week earlier.
Dovish sentiment increased after New York Fed President John Williams noted slowing economic growth and a cooling labour market, adding that monetary policy remains “modestly restrictive” and may require further adjustments in the near term.
