Sterling has spent the past few weeks trading in a fairly narrow range against both the euro and the dollar. After a strong summer, that calm is unlikely to last. Two events converging this autumn, the UK's Autumn Budget and a possible shift in European Central Bank policy, could turn a quiet market into a volatile one almost overnight. If your business has payments due to European or American suppliers, staff, or partners between now and the end of the year, this is the moment to think about protecting yourself before the volatility arrives, not after.
Sterling has held up reasonably well through the summer months, supported by a Bank of England that has kept interest rates on hold and a government that, so far, has avoided any major fiscal missteps. That stability has been useful for businesses budgeting international payments, but it has also lulled some into assuming the calm will continue.
It won't. The Autumn Budget is approaching, and with it comes one of the biggest tests of fiscal credibility the current government has faced. Early signals are already filtering through the gilt market, where investors are starting to price in some uncertainty ahead of the announcement. Currency markets tend to follow gilts closely when fiscal policy is in question, so businesses should expect sterling to become more reactive to headlines in the coming weeks.
The gap between a calm market and a volatile one can close in days, not weeks. Once Budget speculation intensifies, the window to secure a rate on favourable terms tends to narrow fast.
Every Autumn Budget carries some currency risk, but this year's carries more than most. The Chancellor faces a genuinely difficult balancing act: convincing markets there is a credible plan to manage the public finances, while also finding room to support growth. That combination is hard to land cleanly, and investors know it.
Analysts covering sterling have flagged growing scepticism about the durability of the government's fiscal plan, particularly after reports of last-minute changes to tax policy unsettled the gilt market over the summer. When investors doubt the credibility of fiscal plans, the reaction tends to show up in the currency before anything else. A Budget that reassures markets could support sterling. One that doesn't could see it give back a meaningful chunk of its summer gains quickly.
Sterling's Budget risk isn't happening in isolation. Across the Channel, the European Central Bank is facing pressure of its own. Energy prices linked to ongoing tensions in the Middle East have pushed inflation expectations higher across the eurozone, and markets are now pricing a real possibility of an ECB rate hike in September. That would mark a significant shift after a long period in which European rates moved in the opposite direction to the UK's.
For UK businesses paying euro invoices or receiving euro revenue, this matters. A more hawkish ECB alongside a Bank of England that has held rates steady changes the relative pull between the two currencies. Exactly which way that balance tips is hard to call with confidence, and that uncertainty is itself the point. When two major central banks are both approaching pivotal decisions at the same time, qualitative direction becomes harder to predict, and the value of locking in certainty goes up.
None of this means you need to predict where sterling ends up by December. It means the next few weeks, while markets are still relatively calm, are a good time to look at what you have coming due against the euro or dollar and decide how much of that risk you want to carry into autumn. Whether that's a forward contract to lock in a rate for a payment three months out, or a limit order that captures a favourable move if one comes, the right tool depends on your business and your timeline. Speak with our team at Dinheiro before the Budget headlines start driving the conversation instead of you.
Speak with our team about locking in your euro or dollar payments before the volatility returns.