Sterling Extends Rally as Reeves Prepares Tax-Heavy Budget

Sterling’s rise ahead of Rachel Reeves’ budget announcement set the tone as the pound climbed 0.2% to $1.3193, while implied volatility stayed subdued. Global currencies moved after policymakers shifted stances, with the yen strengthening on expectations of a potential BOJ hike and the kiwi jumping after the RBNZ cut rates but abandoned dovish guidance; Brent crude steadied after an initial plunge tied to shifting signals on a Ukraine-Russia peace plan. Equity markets rebounded broadly, led by a 2% surge in Japan’s Nikkei and gains across MSCI Asia ex-Japan, though Hong Kong lagged as Alibaba’s outlook weighed on its shares.

Equities

The FTSE 100 closed 0.8% higher on Tuesday, supported by gains in financials and consumer staples ahead of Wednesday’s budget. The index benefited from strength across personal goods, construction and retail stocks. The FTSE 250 rose about 1%, marking its best day in over a month.

Burberry closed 4.7% higher as personal goods stocks moved up. Ibstock gained 5.9% after a strong session for construction and materials companies. Kingfisher also rose 5.9% after the home improvement retailer increased its annual profit forecast, lifting the broader retail sector.

Banks were firmer after reports suggested the government is unlikely to target the industry with new taxes. Lloyds Banking Group rose 3.8%, Barclays gained 2.4% and NatWest advanced 3.7%. Anglo American closed 1.6% higher as miners tracked firmer commodity prices. In the travel and leisure sector, Wizz Air climbed 3.6%, while EasyJet closed 1.5% lower on concerns about weaker winter sales.

Beazley fell 9.2% after cutting its annual written premiums forecast, weighing on non-life insurers. Compass Group closed 2.7% lower after signalling more moderate revenue growth in 2026. Domino’s Pizza Group slipped 1.4% after its CEO resigned as the company works on a new strategy to address weaker sales and rising costs.

In the United States, the Dow Jones Industrial Average closed 1.43% higher on Tuesday, while the S&P 500 gained 0.91% and the Nasdaq rose 0.67%. Nvidia fell 2.6%, limiting the Nasdaq’s rise, although the Philadelphia Semiconductor Index managed a small gain.

Alphabet rose 1.5% following reports that Meta Platforms, which added 3.8%, is in discussions to use Google’s AI chips from 2027 and rent chips from Google Cloud next year. In retail, Kohl’s surged 42.5% after raising its annual earnings forecast, while Abercrombie & Fitch gained 37.5% for the same reason. Burlington Stores fell 12.2% after its quarterly revenue missed expectations. US-listed Alibaba shares closed 2.3% lower despite topping revenue forecasts.

Forex & Commodities

The US dollar slipped after a run of delayed but closely watched US data reinforced expectations of a December rate cut from the Federal Reserve. The euro moved up to $1.158 and sterling firmed to $1.320 in afternoon US trading, while the dollar index moved down to 99.75 after retail sales for September rose by less than forecast and producer prices edged higher. US consumer confidence for November also moved lower, extending the pressure on the greenback. Comments earlier in the week from Fed Governor Christopher Waller and New York Fed President John Williams added to the shift in tone, while markets continued to price a strong chance of a cut next month.

The yen strengthened to ¥155.99 per dollar on Tuesday as traders remained alert for any sign of intervention from Tokyo, particularly given thinner liquidity expected around the US Thanksgiving holiday. The offshore Chinese yuan edged up to 7.083 per dollar, and the New Zealand dollar moved higher to $0.5623 after recent declines.

Gold rose early on Wednesday, with spot prices touching $4157 per ounce as the weaker dollar and the growing likelihood of a Fed cut supported demand for the metal. US Treasury yields remained near one-month lows ahead of the weekly jobless claims report.

Oil prices moved up modestly early on Wednesday, with Brent trading at $62.75 per barrel and WTI at $58.19 after both benchmarks closed lower on Tuesday. Markets continued to assess the prospect of a Russia-Ukraine peace framework that could ease sanctions on Russian energy, alongside signs of a supply glut forming in 2026. API data late on Tuesday pointed to a fall in US crude stocks, with official EIA figures due later today.