It came ahead of Reeves' announcement on Monday about cuts to address the ￡22bn spending shortfall. (Image: Getty)
The pound weakened against the US dollar as investors showed caution ahead of the Chancellor's announcement today in which she revealed planned cuts to tackle a projected overspend of ￡22 billion.
Sterling’s value dipped by 0.4 percent against the US dollar on Monday morning, at about 1.281, hitting a new near three-week low.
The pound was also down about 0.15 percent against the euro at 1.1835, suggesting some caution among traders.
Currency movements typically indicate the reaction of financial markets to events that could impact the wider economic landscape.
It came ahead of Rachel Reeves' speech in the House of Commons in which she shared the results of the audit into Treasury spending she commissioned, and accused the previous Conservative government of “covering up the true state of the public finances”.
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In light of the black hole in the public finances, Reeves said she was forced to make the “difficult decision” that those not in receipt of pension credit or other means-tested benefits won't get the winter fuel payment from this year and beyond.
Labour's new office of Value for Money will move to identify areas where ministers can save money this financial year, she told MPs.
The office, which was promised in Labour's manifesto, is expected to announce billions in public cuts that could see infrastructure projects including former PM Boris Johnson’s New Hospital programme and the road tunnel near Stonehenge scrapped.
Meanwhile, investors are also reacting to expectations that the Bank of England could decide to cut interest rates on Thursday for the first time in more than four years.
Financial markets are more or less split over whether policymakers will decide it is the right time to reduce rates or wait until later in the year.
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Economists have also stressed that the decision could be a close call, with the Bank wanting to be certain that inflation is under control before it can start to ease monetary policy.
Earlier this month, the pound rallied to hit its highest value against the US dollar in a year.
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A group of economists at ING said this was driven more by the American currency weakening, as well as political turbulence in France making waves overseas.
The upcoming interest rate decision could “therefore present a headwind to the resurgent pound”, ING cautioned.
Elsewhere, the UK’s FTSE 100 index surged by one percent on Monday morning amid the prospect of lower rates.