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Investing.com -- The pound is trading with a moderate risk premium that appears likely to remain in place until the Budget announcement on November 26, according to ING.
The UK government’s U-turn on income tax hikes has added uncertainty and unnerved bond investors, contributing to pressure on sterling.
Bank of England (BoE) Monetary Policy Committee members Catherine Mann, known for her hawkish stance, and Swati Dhingra, who tends to favor dovish policies, are both scheduled to speak Thursday.
Wednesday’s UK Consumer Price Index (CPI) report showed mixed signals, with hawks likely to focus on rebounding food inflation while doves may point to the multi-month moderation in services inflation.
BoE Chief Economist Huw Pill indicated earlier this week that the December interest rate decision remains finely balanced. The dovish faction would need one committee member to switch sides to secure a rate cut.
ING analysts believe a restrictive UK budget next week, combined with upcoming economic data, could be enough to tip the balance toward a rate reduction.
The bank maintains its year-end target of 0.88 for EUR/GBP, suggesting the risk premium affecting the pound may decrease after the Budget announcement. However, ING expects that some of this premium will be replaced by dovish repricing in the markets.