Amidst Chancellor Reeves’ welfare bill, the Pound Sterling weakens against other currencies despite her commitment

    by VT Markets
    /
    Jul 4, 2025

    The Pound Sterling is experiencing selling pressure despite reassurances from UK Chancellor of the Exchequer Rachel Reeves about her continued role amidst financial challenges. Reeves has clarified she remains committed to her position and expressed her personal upset unrelated to her work.

    New welfare measures increasing the Universal Credit allowance have sparked concerns about fiscal stability. These changes threaten to disrupt existing plans to save £5.5 billion by 2029-30 and may necessitate adjustments like spending cuts or tax increases.

    Currency Exchange Challenges

    Currency exchange reveals the Pound Sterling’s struggles, showing depreciation against various major currencies, with marked weakness against the Canadian Dollar. The GBP/USD pair has dipped slightly, affected by subdued trading due to US holidays and tariff-related uncertainties.

    Globally, the US Dollar shows weakness due to stalled trade deals and the passing of a contentious fiscal bill. Additional concerns about US fiscal risks and slowed private sector hiring contribute to possible Federal Reserve rate cuts.

    Pound Sterling remains a robust global currency driven predominantly by Bank of England policies and economic indicators like GDP and trade balance. Key influences include monetary policy adjustments in response to inflation control, significantly impacting its valuation.


    Reeves’s statements have done little to lift the Pound from its downward track. While her continued presence might offer policy continuity, the market seems more focused on the government’s projected spending path. The proposed increases to Universal Credit appear to have raised doubts that prior savings targets, especially that £5.5 billion buffer earmarked for deficit control, will be maintained. Now, that shortfall potentially points toward corrective measures—either through reduced public services or revenue hikes, both of which tend to be unpopular and disruptive.

    Forex Market Pressures

    The foreign exchange market reflects these pressures. Sterling’s softness isn’t isolated—it’s particularly pronounced in its performance against North American currencies. The move in GBP/CAD stands out, not solely for its scale but because the Canadian Dollar itself isn’t riding any especially strong economic momentum. This suggests weakness in Sterling is internal rather than externally driven. The mild dip in cable—GBP/USD—is less about strong Dollar demand and more to do with reduced liquidity over the US bank holiday, combined with short-term positioning headaches from Chinese import tariff concerns.

    Across the Atlantic, the Dollar’s own hesitation brings a different flavour to the equation. American policymakers continue to show fractures over budget priorities, and the passage of yet another stopgap fiscal measure hasn’t calmed nerves. With US employers becoming more cautious—private sector hiring slipping and job openings negotiating a ceiling—the idea of the Fed pausing or even reversing earlier rate hikes gains traction. That doesn’t necessarily make Dollar selling the obvious response yet, but it reduces one tailwind for greenback strength.

    For trades linked to interest rate assumptions and currency pairs involving the Pound, it’s useful to keep forward guidance under close watch. Market pricing for Bank of England meetings might soon pivot more sharply if fiscal slack filters into inflation expectations or consumer behaviour. If the government leans towards funding welfare obligations through higher taxes or heavier borrowing, that could reintroduce fears reminiscent of earlier UK budget missteps, and concern over long-gilt demand may find its way into Sterling pricing.

    We’re watching the differentials between yields on UK versus overseas government bonds. That’s an efficient way to assess how investors are recalibrating risk in real-time. Moves, especially in 2-year and 10-year spreads, tend to correlate quite closely with medium-term Pound volatility. Of equal interest is the inversion—or re-steepening—of those curves, which often signals shifts in expectations about economic momentum and rate decisions.

    The influence remains heavily weighted towards central bank communication, particularly BoE transcripts, minutes, and any change in rhetoric around wage growth or services inflation. Sharp moves in open interest within Sterling futures could reveal which way institutional money is leaning ahead of policy meetings. If speculative net long positions shrink over the next two weeks, short-term traders should brace for greater pullbacks, particularly in thin trading windows or when key macro data prints surprise expectations.


    One final area we’re monitoring: UK economic data surprises—especially on monthly GDP and trade figures. The magnitude of response in price action relative to consensus deviation helps us colour in just how reactive the Pound is, and where support levels may quietly be forming beneath surface decline.

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