The risks are stacking up for the pound.
Britainâ€™s currency fell the most in three weeks versus the dollar as investors braced for a budget at which fiscal tightening is anticipated, a Bank of England statement that theyâ€™ll peruse for indications about the interest-rate path and a Federal Reserve gathering where, speculation is building, officials will signal a boost to U.S. borrowing costs later in 2016.
And in the background were renewed investor concerns that the U.K. will quit the European Union.
â€œThis week sees a potential double fiscal and monetary hit for the pound surrounding both the budget and the Monetary Policy Committee,â€ said Neil Jones, London-based head of hedge-fund sales at Mizuho Bank Ltd. â€œIâ€™m looking for a further selloff,â€ he said, adding that increased expectations of a â€œBrexitâ€ and even a BOE rate cut were also weighing on sterling. The pound dropped 1 percent to $1.4154 as of 11:15 a.m. London time, set for the biggest slide since Feb. 22 and its second day of declines. It slipped 0.9 percent to 78.35 pence per euro.
U.K. government bonds rose, with the 10-year gilt yield falling four basis points, or 0.04 percentage point, to 1.51 percent. The 2 percent security due in September 2025 climbed 0.35, or 3.50 pounds per 1,000-pound face amount.
In an interview with the BBC on Sunday, U.K. Chancellor of the Exchequer George Osborne warned that Wednesdayâ€™s budget statement will include more spending cuts. Interest-rate indicators also back the case for a depreciation of sterling.
While thereâ€™s little chance of the Federal Open Market Committee raising rates when it announces its latest policy decision on Wednesday, the odds of action by the December meeting stand at 78 percent, according to futures prices compiled by Bloomberg. That compares with 30 percent a month ago.
Economists in a monthly Bloomberg survey put the likelihood of a cut to the BOEâ€™s 0.5 percent benchmark rate this year at 23 percent, up from just 10 percent in February.
Investors are â€œpositioning into the FOMCâ€ said Eimear Daly, a currency strategist at Standard Chartered Plc in London. With â€œpeople going long dollars and also a little bit of â€˜Brexitâ€™ fear,â€ the pound is falling, she said, adding that â€œthereâ€™s a chance the Fed will leave the door open for a June rate hike.â€