LONDON: The pound headed for its worst performance against the dollar since July on Friday, while also wallowing at 2-1/2-year lows against the euro, reflecting growing investor nervousness about the outlook for UK government finances.
Sterling, which has fallen 2.3 percent in October, set for its biggest monthly decline since July and the second-largest this year, was down another 0.11 percent on the day at USD1.3136, near its lowest since April.
British finance minister Rachel Reeves, who is dealing with political pressure this week over a rental dispute, is presenting her budget in late November.
Reeves already has very limited headroom, based on her own fiscal rules, with which to manoevre, when it comes to keeping Britain’s finances on track.
Expectations are mounting that she may be forced to break election pledges and hike some taxes after warnings official forecasts could show the economy is in a worse state than once thought.
UK gilts, which still carry a higher yield than the bonds of any other major economy, have rallied strongly this month, buoyed by investors betting on the Bank of England cutting interest rates sooner than previously thought, as metrics like inflation hold steady.
Money markets show traders think there is around a 45 percent chance the BOE lowers borrowing costs by a quarter point when it meets next week, compared with next to no chance just a couple of weeks ago.
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