GBP Volatility Rises as Political Shifts Hit Markets; USD Softens Despite Hawkish Fed Signals

Key Insights:

GBP sees heightened volatility amid ongoing political commentary

 Market Recap:

 The U.S. dollar extended its decline, marking its sixth drop in 7 days, as markets reassessed the economic outlook following the government shutdown and adjusted their expectations for future Fed policy. The softer dollar helped lift risk-sensitive currencies, with both the euro and pound recovering despite the weaker UK GDP figures released earlier in the day.

 Meanwhile, White House economic adviser Kevin Hassett signalled that the delayed September nonfarm payrolls data may be published as soon as next week. He added that the October employment report will likely include only payroll figures, excluding the unemployment rate, due to the disruption caused by the shutdown. As a result, markets are expected to place greater emphasis on the September numbers, which should offer a clearer read on underlying labour-market conditions.

Today's Market Watch:

GBP under pressure

Sterling slipped against its G10 peers after reports suggested Chancellor Rachel Reeves is considering shelving planned income-tax and levy increases in the upcoming Budget. Markets viewed the possible policy shift as a sign the government may struggle to close the estimated £35bn fiscal shortfall. This raised renewed questions around the growth outlook and the amount of gilt issuance required. If markets begin demanding a larger risk premium to hold UK debt, gilt yields could push higher again—which in turn would leave GBP vulnerable to further downside.

USD tone stays soft despite hawkish Fed remarks

The U.S. dollar is still trading on the back foot this morning even after Fed officials Kashkari and Hammack signalled they are not convinced another rate cut is appropriate in December. Their comments prompted markets to trim the probability of a 25bp reduction next month from roughly 65% to about 50%, but this shift has not translated into meaningful USD strength so far.

14th November 2025

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