• GBP/USD hits a two-month low as UK fiscal concerns weigh on the Pound Sterling.
• UK Chancellor Rachel Reeves is reportedly considering new tax increases.
• Consumer confidence in the United States deteriorated slightly in early October.

GBP/USD retreats toward 1.3280 during Friday’s US session, marking a fresh two-month low. The US Dollar (USD) remains firm, supported by increased safe-haven demand amid political uncertainty in Japan and France. The US Dollar Index (DXY) holds near Thursday’s two-month high of 99.56, limiting any rebound of the Cable.

Despite rising expectations for further interest rate cuts by the Federal Reserve (Fed) before year-end, the Greenback remains in demand. According to the CME FedWatch tool, markets assign over an 80% chance of a 50-basis-point rate cut by December. 

Federal Open Market Committee (FOMC) members John Williams and Mary Daly acknowledged that the current monetary stance remains restrictive and that further easing could be needed as labor market conditions deteriorate. However, Fed Governor Michael Barr warned against excessive rate cuts, stressing that inflation is unlikely to return to the 2% target within the next two years.

Fresh US data released on Friday confirmed a fragile consumer outlook. The University of Michigan’s preliminary Consumer Sentiment Index fell slightly to 55 in October from 55.1 in September, outperforming expectations of 54.2. The report supports the view that the Fed could maintain a dovish stance as household sentiment remains subdued.

In the United Kingdom (UK), fiscal pressures continue to undermine investor confidence. Chancellor of the Exchequer Rachel Reeves is reportedly planning further tax hikes in the Autumn Statement due in November to address the widening public deficit. This prospect raises growth concerns, especially after the previous increase in employers’ National Insurance contributions to 15% already slowed labor demand.

On the monetary front, Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann reiterated on Thursday that policy must remain restrictive for longer to counter persistent upside inflation risks. “Evidence from consumer behavior shows that we are not there yet,” Mann said, according to Reuters.