GBP/USD declined for a fourth consecutive session during Asian trading on Wednesday (October 28), currently trading near 1.3280, marking a one-week low. Traders are awaiting UK Chancellor of the Exchequer John Healey's first budget submission later in the day.
UK Budget: Healey Faces Dual Pressure on Cost of Living and Business Support, Limited Policy Space
UK Chancellor Healey is facing mounting political and economic pressure to deliver concrete measures quickly to ease the persistent cost-of-living burden on households while providing urgently needed support to businesses across the country. Volatile energy prices and elevated food and housing costs have significantly squeezed ordinary households' disposable incomes, driving rising public calls for fiscal support. Meanwhile, small and medium-sized enterprises, burdened by high interest rates and slowing demand, also urgently need policy relief. However, Healey's policy options remain severely constrained. He must operate within tight fiscal boundaries caused by high government borrowing costs and substantial tax increases already implemented by his predecessor, Rachel Reeves. Any large-scale tax cuts or new spending could further push up borrowing costs and trigger market concerns about fiscal sustainability. Balancing livelihood support with fiscal discipline within limited space has become the core challenge of current UK fiscal policy.
Dollar Strength: Safe-Haven Sentiment Ahead of Fed Decision, 92.8% Probability of Holding Steady in October
GBP/USD has depreciated primarily because the dollar is gaining support from cautious market sentiment ahead of the Federal Reserve's rate decision later in the day. Investors are broadly adopting a wait-and-see approach while closely monitoring upcoming key economic data, including GDP growth and the Personal Consumption Expenditures price index, seeking further clues about the future path of monetary policy. The market widely expects the Fed to keep the benchmark rate unchanged at the 3.75%-4.0% target range on Wednesday. According to the CME FedWatch tool, market pricing puts the probability of holding rates steady at this meeting at 92.8%, while the probability of a December rate hike stands at 84.4%. Traders will pay close attention to remarks from Fed Chairman Kevin Warsh, attempting to capture any subtle hints about the central bank's stance on the economic outlook, inflation risks, and future policy direction. A hawkish tone could further boost the dollar and intensify pressure on the pound; a dovish signal could temporarily ease dollar strength and provide some breathing room for sterling.
US Treasury Safe-Haven Demand: Improved AI Sentiment and Tech Earnings Weaken Safe-Haven Flows
Meanwhile, as market sentiment toward AI-related prospects has notably improved, demand for safe-haven US Treasuries has weakened. Upcoming earnings reports from major technology companies are highly anticipated by the market, expected to provide new insights into AI-related demand 鈥?a sector that has been a key driver of US economic growth. These earnings results could validate or revise market expectations for AI capital expenditure and profit contribution, thereby influencing overall risk appetite. Recent global tech stock selloffs had triggered safe-haven inflows into US Treasuries, pushing bond prices higher and yields lower; the current sentiment recovery has partially reversed this flow. If tech giants' earnings exceed expectations, the appeal of risk assets would rise, potentially further weakening safe-haven demand for US Treasuries, pressuring yields to rebound and indirectly affecting the relative movements of the dollar and other currencies.
Summary
GBP/USD fell for a fourth consecutive session during Asian trading on Wednesday to near 1.3280, with traders awaiting UK Chancellor Healey's first budget submission later in the day. Healey faces dual pressure to ease household cost-of-living burdens and support businesses, but high government borrowing costs and substantial prior tax increases have severely limited his policy space. The dollar strengthened on safe-haven sentiment ahead of the Fed decision, with market pricing implying about a 92.8% probability of holding steady in October and about an 84.4% probability of a December rate hike; the focus is on Warsh's remarks and economic data including GDP and PCE. Improved AI sentiment and upcoming tech earnings have weakened safe-haven demand for US Treasuries, reversing part of the safe-haven flows triggered by the recent global tech selloff. The pound's short-term direction depends on the market reaction to the budget and the relative signals from the Fed decision. (GBP/USD daily chart, source: E-Huitong) At 14:58 Beijing time, GBP/USD was quoted at 1.3279/80.
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