- GBP: Tactical recovery into year-end says UBS.
- GBP/EUR: Ukraine peace deal disappointment.
- GBP/USD: Data dump due.
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Pound sterling is firm on the eve of the budget, indicating markets have found their 'sweet spot' ahead of what promises to be a painful affair for the country's earners.
The market looks resigned to approximately £30BN in piecemeal tax rises being aimed at the productive sector. There are risks of an unexpected shambles, but with sentiment so downbeat, all Chancellor Rachel Reeves has to do is deliver on what her office has leaked to the nation.
If successful, look for a tactical GBP recovery into year-end, says UBS.
The bank's Chief Investment Office says recent losses by the currency reflect "a fiscal risk premium being priced into the GBP."
? "We expect this premium to be priced out after the Autumn Budget," it says, targeting euro-to-pound down to 0.87 by year-end, or pound-to-euro up to 1.15.
However, sterling weakness tipped to resume in 2026: "Positive EUR factors and narrowing rates differentials should gradually lift the EURGBP over the course of 2026. UBS forecast EURGBP at 0.89 at end-2026 (GBPEUR at 1.1240).
? The dollar is in focus today as an important salvo of data is fired at investors.
Several key indicators for the US economy are set to be released in the afternoon.
? This includes the PPI, retail sales and the consumer confidence indicator. Note that the PPI and retail sales are part of the delayed September releases.
"With few other data prints on the agenda, the market reaction could be larger than usual and may very well affect sentiment surrounding the FOMC December meeting," says Danske Bank.
? The pound-to-dollar holds above 1.31 into the data.
Ukraine war negotiations prompted some excitement in the euro on Monday, with markets seemingly reacting to Donald Trump's observations that "something good just may be happening" in talks being held between the U.S. and European leaders in Geneva.
However, gains faded after Russia said the counterproposals being put forward by Europe were a non-starter.
Today, U.S. Army Secretary Dan Driscoll holds talks in Abu Dhabi with Ukrainian and Russian representatives as the U.S. continues to push for a deal to end the Russian invasion.
? Sweden's SEB says the euro could rally by as much as 7.5% against the dollar if a credible peace agreement is struck between Russia and Ukraine.
Analysts said a breakthrough would be a "game changer for European growth and inflation dynamics" by boosting household spending power and reigniting the manufacturing sector.
"EUR/USD upside would be front-loaded via equities, with energy a modest tailwind and rates reinforcing over time," SEB wrote in its Macro & FICC research note.