DBS Group Research’s Philip Wee highlights the challenges facing GBP/USD as the UK Autumn Budget and FOMC decision put fiscal credibility and monetary policy divergence in focus. He notes that expectations for a hawkish Fed and ECB, alongside prospects of a Bank of England rate hike, have helped the Pound outperform the Euro over the past week. GBP has also emerged as a relatively resilient alternative amid political risks in the US and France.

Pound holds as policy risks build

“GBP/USD faces a difficult balancing act today as the UK Autumn Budget and FOMC decision put fiscal credibility and monetary policy divergence under scrutiny.”

“The FOMC is widely expected to leave rates unchanged while keeping the door open to another hike in December.”

“However, the European Central Bank is also likely to deliver a hawkish hold tomorrow, while markets are positioning for a Bank of England hike at its November 5 meeting.”

“These expectations have helped GBP to hold up better than the EUR over the past week.”

“Beyond these policy events, GBP has emerged as a relatively less vulnerable alternative to the political risks in both the US and France.”