Sterling dips after Reeves makes rare pre-budget speech

By Amanda Cooper and Dhara Ranasinghe

LONDON, Nov 4 (Reuters) - The pound and gilt yields fell on Tuesday after finance minister Rachel Reeves reiterated her commitment to sticking to her fiscal rules in her budget this month, ahead of one of the most uncertain Bank of England rate decisions in some time.

In a rare pre-budget speech on Tuesday, Reeves said her commitment to her budget goals was "iron clad", even as high interest rates and years of under-investment continue to constrain public spending.

Sterling GBP= fell 0.34% to $1.3092, from around $1.311 before Reeves' speech. The pound posted its poorest monthly performance against the dollar in October since July. The euro EURGBP=, which its highest in two and a half years against the pound last week, was up another 0.2% at 87.84 pence.

Reeves said on Tuesday Britain had faced increasing challenges since her first budget last year, as questions grow over which taxes she will raise to keep her budget on track.

"She (Reeves) is justifying tough decisions to come in the budget. The fact that this is happening at all means that manifesto pledges will not be followed to the letter," Kit Juckes, head of currency strategy at Societe Generale, said.

"We're going to have higher taxes."

The yield on the benchmark 10-year gilt GB10YT=RR fell as much as 5.9 basis points to a low of 4.379%, before retracing to 4.42%, showing a 1.8-bp drop on the day, which further undermined sterling.

Until late October, money markets showed traders expected no move at all from the BOE until at least the spring. Thanks to signs of a cooling in some inflationary pressures and a rising expectations for Reeves to announce more belt-tightening in her budget, there is now a near-50/50 chance of a cut on Thursday.