British Pound trims losses but remains below 1.3300 with all eyes on the UK budget

• GBP/USD picks up from two-week lows at 1.3275 but remains below 1.3300, on track for a four-day reversal.
• Investors remain wary ahead of the release of UK Chancellor Healey's budget.
• In the US, the Fed is expected to leave interest rates on hold, and investors will be attntive for hints of a December hike.
  

The British Pound (GBP) is heading south against the US Dollar (USD) for the fourth consecutive day on Wednesday, with investors awaiting the release of the UK budget and the US Federal Reserve’s (Fed) monetary policy decision, both due later in the day. The GBP/USD pair has reached a fresh two-week low at 1.3275, before picking up to 1.3295 at the time of writing.

In the UK, the highlight of the week is the release of the first budget of Prime Minister Andy Burnham’s cabinet, with the main focus on the plans to finance the tax exemptions announced by the cabinet to ease British citizens’ cost of living.

Markets remain wary, with the UK’s public finances strained as total public debt surpassed GBP 3 trillion in September, amid a significant increase in net borrowing. The previous chancellor, Rachel Reeves, left a GBP 23.6 billion buffer, but the surge in debt costs is likely to have eaten up approximately half of it. With bond markets jumpy, and the 2022 Liz Truss fiasco still fresh, the details of Chancellor Healey’s budget are likely to trigger some Pound volatility.

Dollar support seen as focus shifts from AI jitters to FOMC risk

In the US, the Fed is widely expected to leave interest rates on hold, but the question is whether Chairman Kevin Warsh will support market expectations of another rate hike in December, considering his distaste for forward guidance.

Strategists at ING note that “a little stability on the AI side has allowed the FX market to re-focus on the clearer and more present danger of higher energy, higher inflation and the central bank response,” which is boosting speculative demand for the Greenback.

Regarding the Fed, ING states that they “suspect Chair Warsh will not want to tie himself in knots by citing a tightening in financial conditions, having learnt from the unruly market response to his press conference in July.” Instead, they expect that a “focus on restoring monetary stability should remain the dominant message and keep the dollar supported.”