Pound Holds Steady as Markets Await UK Budget

The British pound showed remarkable resilience last week, holding steady against the US dollar and reaching a two-month high against the euro. This relative strength came as French bond markets faced turbulence, making UK assets appear more attractive to investors.

However, the pound’s gains were tempered by another decline in gilts, with the 30-year yield hitting 6% for the first time since 1998. This move is expected to reduce the Labour government’s fiscal flexibility ahead of the crucial Autumn Budget on October 28th.

Support for the pound also came from robust domestic economic data. Revised GDP figures revealed that the UK economy grew faster than initially estimated in the second quarter, although economists still predict a slowdown in the coming months. The resilience in demand, despite economic headwinds, has been noted as a positive development.

With little significant UK economic data due this week, market focus is squarely on the upcoming budget. The EUR/GBP exchange rate, meanwhile, remains heavily influenced by developments in France.