In the face of a cautious market sentiment, the British pound has remained relatively muted against the US dollar, reflecting the anticipation surrounding the upcoming autumn budget. As Chancellor Rachel Reeves prepares to unveil plans to raise taxes and boost public spending, the market is closely watching for the potential impact on the Bank of England's interest rate trajectory.

Weathering the Storm: Sterling's Resilience in Turbulent Times

Bracing for the Autumn Budget

The British pound has been trading just 0.03% higher at $1.2972 against the US dollar, as investors adopt a cautious stance ahead of the highly anticipated autumn budget. Chancellor Rachel Reeves is expected to unveil a strategy that includes raising taxes and increasing public spending, a move that has been hinted at by Sir Keir Starmer during his recent speech in Birmingham. Prime Minister Rishi Sunak has emphasized the necessity of making "tough decisions" to raise taxes, stating that this approach is crucial to avoid austerity measures and help rebuild public services.ING strategist Francesco Pesole has noted that there is currently no political risk premium priced into the pound, while speculators are holding a fairly substantial bullish position in sterling futures. However, Pesole warns that this position could quickly unwind if the budget fails to meet market expectations. "Sterling continues to look vulnerable ahead of tomorrow's budget event and next week's US election, and risks remain skewed to a move to $1.2800-1.2850," he said.

Navigating the Interest Rate Landscape

Investors will be closely monitoring the forthcoming spending plans, as they could have a significant impact on the Bank of England's (BoE) interest rate trajectory. A recent Reuters poll suggests that the BoE is poised to cut interest rates by 25 basis points to 4.75% in its upcoming meeting on November 7. This would represent the central bank's second interest rate reduction of the year, following its decision to maintain the key borrowing rate at 5% during its last policy meeting in September.The potential interest rate cut by the BoE is likely to be influenced by the government's fiscal policies unveiled in the autumn budget. Investors will be closely monitoring the interplay between the central bank's monetary policy and the government's fiscal measures, as they seek to navigate the complex economic landscape.

Sterling's Performance Against the Euro

In addition to its movement against the US dollar, the British pound has also been muted in its performance against the euro (GBPEUR=X), trading at €1.1996. The relative stability of the pound across major currency pairs reflects the cautious market sentiment and the uncertainty surrounding the upcoming events.

The Allure of Gold Amid Political Turmoil

Amidst the economic and political uncertainty, gold prices have remained near record highs on Tuesday, buoyed by the upcoming US presidential election. Spot gold was up by 0.2% at $2,749.26 per ounce, while US gold futures rose 0.3% to $2,763.40. IG market strategist Yeap Jun Rong noted that the lead-up to the US elections may continue to offer traction for gold's status as a hedge against market turbulence, further supported by a temporary breather in the US dollar and Treasury yields.While stronger economic data may support more patience in the Federal Reserve's easing process, Yeap expects gold prices to remain supported, with rate expectations well-anchored around a smaller 25 basis points cut in November. Investors are eagerly awaiting the Fed's rate decision, with markets pricing in about a 99% chance of a 25 basis points rate cut.

Oil Prices Fluctuate Amid Geopolitical Tensions

Crude oil prices have been nursing losses on Tuesday, after plummeting nearly $5 a barrel in the previous session. Brent crude futures rose by 0.4%, trading at $71.29 per barrel, while US West Texas Intermediate (WTI) (CL=F) gained 0.2%, reaching $67.51 per barrel during early European trading. Both contracts tumbled 6% on Monday to their lowest since 1 October.The decline in prices was fueled by indications that the Middle East region may be stepping back from a dramatic escalation of conflict. Over the weekend, Israel launched retaliatory airstrikes against Iran, but notably refrained from targeting key oil and nuclear facilities, which helped to avoid disrupting energy supplies. In response, Iran's leadership indicated it was weighing its options, reporting that the Israeli attacks resulted in only "limited damage." This statement was interpreted as a sign that Tehran is hesitant to allow the conflict to escalate further."While outlook for the Middle East situation remains alarming, the market is expecting a temporary lull in retaliatory strikes between Israel and Iran," said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

The FTSE 100: Navigating the Choppy Waters

The FTSE 100 (^FTSE) was higher at the open, gaining 0.2% to 8,298 points. Investors will be closely monitoring the performance of the UK's leading index as it navigates the turbulent economic and political landscape. The volatility in the FTSE 100 reflects the broader uncertainty surrounding the British economy and the potential impact of the upcoming budget and other global events.