Sterling falls to two-week low

The British pound slipped to $1.362 on Monday, marking a two-week low, as investor concerns mounted over the UK’s fiscal trajectory and political direction. Pressure on the currency intensified after Chancellor Rachel Reeves signaled in an interview with The Guardian that tax increases could be on the table in the upcoming autumn budget.

While she stopped short of confirming any specific measures, Reeves’ refusal to rule out hikes reinforced speculation that the newly elected Labour government may turn to revenue-raising strategies to plug a widening public finance gap. This comes on the heels of Labour’s retreat from certain welfare reforms in an effort to avoid internal party divisions—a concession Reeves acknowledged would carry fiscal consequences.

Adding to the uncertainty, markets continue to price in a 25-basis-point interest rate cut by the Bank of England in September, as inflationary pressures ease and growth risks linger. However, the potential for fiscal expansion—or lack thereof—could complicate the monetary policy outlook, especially if tax hikes dampen consumer sentiment or business investment.

The pound also faced external headwinds amid rising global trade tensions. U.S. President Trump confirmed that a new round of reciprocal tariffs will take effect on August 1, targeting countries without a bilateral deal in place. Treasury Secretary Scott Bessent clarified that tariff rates would revert to levels seen on April 2 for nations that fail to secure exemptions.

In a move that further rattled markets, Trump issued a stark warning of an additional 10% tariff on countries aligning with what he described as the “anti-American policies of BRICS,” a bloc increasingly viewed by Washington as a geopolitical counterweight.

The combination of domestic fiscal ambiguity and a deteriorating global trade environment has left sterling exposed, with traders adopting a cautious stance ahead of key policy updates and international developments.