In retrospect, last week saw a continuation of the Pound Sterling (GBP) performance throughout the year. There was a wealth of interesting news, including new data, speeches by Bank of England officials and statements by the finance minister. However, none of this was sufficient to set the GBP on a decisive new course. Although there were volatile movements, they remained within a fairly narrow trading range for the GBP. Ultimately, EUR/GBP ended the week only slightly lower than it had started. This was basically in line with what we had seen throughout the rest of the year. Although there was no shortage of exciting news, it did not have much impact on the GBP, Commerzbank's FX analyst Michael Pfister notes.

Monetary policy is also back in focus

"On Friday, British finance minister Rachel Reeves emphasised that she would likely increase the fiscal buffer in the new budget at the end of November. As a reminder, this buffer has been shrinking in recent years and many analysts have questioned whether it will be sufficient to cover shocks. While a larger buffer is welcome in principle, it is likely to only exacerbate the underlying problem. As we have repeatedly emphasised in these pages, Reeves is likely to find it difficult to increase revenues sufficiently or reduce spending enough to achieve a balanced budget. A larger buffer makes it more likely that tax increases will follow."

"On the other hand, monetary policy is also back in focus. This year, the central bank has cut interest rates every three months, with decisions marked by volatile votes and, most recently, growing uncertainty among policymakers about how to proceed. Therefore, the chances of a further interest rate cut as early as the beginning of November have continued to decline. However, this does not mean that the tension has disappeared. Depending on how inflation and growth develop, and above all what the budget will look like in November, monetary policy is likely to quickly become an issue again."

"In short, the past few months should not be used as a guide for the coming weeks. In fact, uncertainty is likely to increase significantly again in the near future. It is unclear how Reeves intends to achieve a balanced budget, and, based on last year's experience, any decisions made are likely to impact the GBP. The GBP is facing what are likely to be the most exciting weeks of the year."