UK Pound Falls to Seven-Month Low After Chancellor Reeves' Fiscal Speech

Following Finance Minister Rachel Reeves' rare pre-budget speech, the British pound fell to a seven-month low against the dollar and also weakened against the euro and yen amid expectations of tax increases that break pre-election manifesto promises. Reeves emphasized the need for "hard choices" in her upcoming budget to reduce Britain's debt while maintaining public spending, signaling possible broad tax rises including income tax, National Insurance, and VAT. Despite the announcement, UK borrowing costs fell, with the 10-year gilt yield declining as markets interpreted her commitment to fiscal rules positively. The pound's decline reflects market anticipation of tighter fiscal measures amid ongoing inflation, high debt levels, and low productivity challenges. The timing of Reeves' speech ahead of the Bank of England's interest rate decision is seen as providing clarity on government policy, with some analysts expecting a potential rate cut. Overall, the developments underscore the economic constraints faced by the UK government and the growing likelihood of increased taxation to manage public finances.