Sterling was hovering around the flatline against the dollar in early European trading on Friday after rallying in the previous session, amid news of a significant boost to UK government investment potential in next week’s budget.
Investor sentiment was buoyant after it was reported that chancellor Rachel Reeves planned to change debt rules to allow her to spend an extra £50bn on infrastructure.
Deutsche Bank senior strategist Jim Reid said: “The moves come ahead of the new government’s first budget next week, with chancellor Reeves confirming yesterday that the government would change the way it measures debt, in order to fund extra investment.
Despite the rally, sterling’s ascent has been tempered by disappointing UK economic data. Preliminary PMI data for October the previous session showed an unexpected slowdown in the service sector and a near-stagnation in manufacturing, clouding the outlook and exerting downward pressure on the pound.
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“GBP/USD tries to bounce off Wednesday’s $1.2908 low towards the psychological $1.3000 mark and its September low at $1.3022 which may now act as resistance, together with the July peak at $1.3045,” Axel Rudolph, market analyst at IG, wrote.
Against the euro (GBPEUR=X), sterling was also muted, trading at €1.1982.
Gold prices faltered on Friday as the US dollar regained strength amid changing expectations for Federal Reserve policy. Investors appear to be shifting focus from gold’s safe-haven appeal, eyeing economic indicators and a more stable dollar outlook as the Fed signals a potentially slower approach to future rate cuts.
Spot gold was muted at $2,727.88 per ounce, while US gold futures slipped 0.3% to $2,748.80.
The dollar has rebounded after reaching a three-month high earlier this week, supported by speculation that the Fed may ease up on aggressive rate cuts. In a recent analyst note, a financial strategist said: “The data from the US continues to show economic resilience, which is lowering the market’s expectations for aggressive rate cuts.”
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This renewed confidence in the dollar has added pressure on gold, traditionally seen as a hedge against uncertainty. A stronger dollar typically reduces gold’s allure for investors, as it raises the opportunity cost of holding the non-yielding asset.
Crude oil prices nudged higher on Friday, setting up Brent crude and US West Texas Intermediate (WTI) (CL=F) for a weekly gain of over 1% amid renewed tensions in the Middle East and the prospect of resumed ceasefire talks in Gaza.
