Rachel Reeves, the Chancellor, is anticipated to disclose £15 billion in public spending cuts on Wednesday. Financial experts are selling off the pound as the City prepares for potential downgrades in economic growth projections and the upcoming spending reductions. Recent data from Bank of America shows that institutional investors, like asset managers and mutual funds, have significantly increased their selling of the pound in anticipation of the Spring Statement.

Investors are particularly concerned about the predicted lowered growth forecasts by the Office for Budget Responsibility (OBR), with expectations of a downgrade in growth rates from 2% to around 1% for this year. S&P Global, the credit ratings agency, has already revised its UK growth forecast for this year from 1.5% to 0.8%, citing challenges such as high prices, sluggish growth, and adjustments to public policy changes across the UK.

The weak economic growth has put pressure on the Chancellor to make cuts in public spending to align with the fiscal rules she had set in her October Budget. A surge in government borrowing costs earlier this year has eroded the fiscal headroom that Ms. Reeves had initially planned, leading to the need for the £15 billion spending cuts announcement in a bid to balance the budget.

According to Kamal Sharma, a strategist at Bank of America, the UK's nominal fiscal anchor, the fiscal rule, has been impacting the pound's performance in the market. Bank of America analysts have highlighted possible underestimation by the markets of the risks associated with significant fluctuations in the pound following Rachel Reeves’ Spring Statement.

Even with the substantial selling of the pound by institutional investors, it has climbed over 6% against the dollar since January, driven more by the weakness of the US currency than by strength in the pound due to Donald Trump's tariff policies. In contrast, sterling has experienced a 1% decrease against the euro since the beginning of the year, influenced by Germany's plans to enhance its public finances and establish an infrastructure spending fund. Apart from institutional investors, the sterling market includes retail investors, banks, and businesses engaged in cross-border trade.