Sterling has had a difficult week. On Tuesday, official figures showed the UK government borrowed £18.3 billion in August, well above the Office for Budget Responsibility's forecast and the second-highest August total on record. Within hours the pound slipped to its weakest level against the US dollar in around two months, and it also lost ground against the euro. With the Autumn Budget now set for 28 October, the fiscal picture has moved from background noise to a live driver of the currency.
If your business pays overseas suppliers, or you are moving money abroad for a property purchase, the next five weeks deserve careful planning.
Borrowing data does not usually move currency markets much. This month is different because it lands on top of an already nervous gilt market. Long-dated UK government borrowing costs reached their highest level since the late 1990s earlier in September, and higher debt interest eats directly into the Chancellor's room for manoeuvre.
The year-to-date overshoot means the government now has less headroom against its own fiscal rules going into the Budget. That leaves an uncomfortable choice between tax rises, spending restraint or looser rules, and markets dislike uncertainty about which it will be. When investors grow uneasy about a country's public finances, they can demand a higher return to hold its assets, and that caution often shows up in a softer currency.
The Budget on 28 October is now a genuine event risk for sterling. Any payment due in November or December is exposed to whatever the market decides about the UK's fiscal credibility on that day.
The fiscal story is only half of the picture. The US Federal Reserve raised rates this month and signalled it may not be finished, which has kept the dollar firm. US data has also surprised on the strong side, with business activity figures this week reinforcing expectations of tighter policy. Several major banks now see near-term upside risk for the dollar, even if their longer-term view is more balanced.
Meanwhile, the Bank of England held rates this month in a split vote. Markets still see a meaningful chance of a hike in November, which in normal times would support sterling. The concern is that a rate rise driven by energy-led inflation, arriving alongside a weaker fiscal position, may not give the pound the lift it usually would. Geopolitical tension in the Middle East and its effect on energy prices adds a further layer of volatility.
For anyone paying in dollars, this combination matters most. For euro payers the picture is more mixed, because the eurozone faces its own energy pressures and political uncertainty. That tends to cap how far sterling can fall against the euro, but it does not remove the risk of sharp moves around the Budget.
Nobody can tell you with confidence where sterling will be on 29 October. What you can control is how much of your business or your purchase depends on the answer. We would suggest three practical steps.
List every foreign currency payment due between now and the end of the year: supplier invoices, payroll for overseas staff, property deposits and completion funds. Anything that falls due in the weeks after 28 October is where your exposure is most concentrated.
A forward contract lets you fix today's rate for a payment weeks or months ahead. Many of our clients cover a portion of their known exposure, often half or more, and leave the rest open. That way you have certainty on your core costs while still benefiting if sterling recovers.
For the portion you leave open, a limit order can buy your currency automatically if the market reaches a level you are happy with. It works around the clock, which matters in a week when the biggest moves may happen while you are in meetings or asleep.
The aim is not to predict the Budget. It is to make sure the Budget cannot derail your margins or your property purchase, whatever the Chancellor announces.
Fiscal events have a habit of producing sharp, short-lived moves that catch unprepared businesses off guard. If you have currency payments on the horizon, now is the time to put a plan in place. Speak to our team and we will help you work out how much to protect, how, and when.
Talk to our team about protecting your upcoming currency payments before 28 October, with forward contracts, limit orders and rates your bank cannot match.