Pound's Battle: UK Budget and Sterling's Struggle Against a Weak Dollar

The British pound stabilized against a weakening dollar on Thursday, indicating a cautious market sentiment as investors begin assessing the potential impact of the upcoming UK November budget on the economy and Sterling itself.

The dollar felt broad pressure following a U.S. government shutdown due to funding issues, which added to investor caution regarding U.S. assets. Consequently, sterling held steady against the dollar, trading at 1.3478 after touching a one-month low, while it fell 0.13% against the euro to 87.15 pence.

As the UK finance minister Rachel Reeves prepares her annual budget, due in eight weeks, the markets brace for potential fiscal changes. Speculation suggests potential tax hikes to meet fiscal targets, leading traders to price in a GBP risk premium. This cautionary stance reflects in investor sentiment, with analysts suggesting Sterling's position near 1.35 may weaken further if fiscal constraints tighten.

(With inputs from agencies.)