The British pound strengthened modestly as markets positioned themselves ahead of the UK government’s much-anticipated budget. Financial markets appear cautiously optimistic that the forthcoming measures may avoid overly aggressive tax hikes while still addressing public finance constraints, boosting sentiment around sterling.
Underlying the uptick in the pound is a broader rally in UK equity markets, with financial and resource sectors leading gains. Institutional investors seem to be waiting on the budget’s details before committing to further moves – suggesting that the currency shift may reflect hedging activity rather than a firm new trend.
At the same time, bond markets have shown tentative support, as expectations build that the forthcoming fiscal plan may allow the Bank of England greater flexibility to adjust interest rates. A favourable alignment in global yields – especially with US Treasuries – has helped limit downside pressure on UK gilts and, by extension, on sterling.
The unresolved question is how long this pre-budget calm will last once concrete tax and spending measures are revealed. Should the budget include steep tax rises or aggressive fiscal tightening, the current positive sentiment around the pound and UK markets could quickly unravel – leaving currency and bond investors to reassess the outlook.
