By Matthew Boyle
The end of last week’s trading saw the Pound push the Euro once again to 2.5 year high levels amidst news that the UK Chancellor Rachel Reeves will change the government’s rules on fiscal borrowing. The Labour Government will now change the way the UK measures its debt and as a result will look to borrow 50billion from the Bank of England for Government investment. The result of this news on Thursday saw a flurry in the UK bond market pushing the Pound up across the board however the gains were relatively short lived as it closed the week out half a cent down against the single currency. All eyes now will be on the Budget release this week as the Labour government sets out their plans for the coming year. Whilst the Pound may have seen a slight boost last week Reeves has warned this war chest is separate from day to day spending and will only be used for investments that can return reward, And so the 22 billion black hole will still need to be plugged.
Tax increases are no doubt coming, which may well curb spending, and in turn inflation, which will then perhaps catalyse the biggest thing that cab effect exchange rates – the Bank of England cutting interest rates in the UK. With inflation falling to 1.7% last month the BoE will almost certainly cut rates early next month. And whilst this may be priced in at 0.25%, should the bank cut by 0.5% no doubt exchange rates could be hit hard. Regardless, tax hikes in the Budget will hit spending and bring inflation down so further cuts by the BoE are perhaps inevitable, and with them downward pressure on GBP buying rates. Given we have seen rates fail to push higher several times before over the last few years, could this week could be the start of a downward spiral for GBP with the Budget and interest rate cuts ahead?
This week starts relatively quiet data-wise as much of the focus will be on the UK budget Wednesday. We do have a number of releases from Germany mid-week including GDP and inflation so watch for them too. The week closes with the all important non-farm payroll release from the US.
Should you have an upcoming transfer to make speak to A Place in the Sun Currency today for some friendly and professional guidance on how to get the most out of your transfer, and help your money go further.
Data Releases this week
Monday
17.30 CAD BoCs Governor Macklem’s Speech
Tuesday
07.00 EUR German Consumer confidence survey
13.00 USD Housing Price Index
14.00 USD Consumer confidence
Wednesday
00.30 AUD Inflation Data & Retail Sales
08.55 EUR German Employment Data
09.00 EUR German GDP
10.00 EUR Eurozone GDP
12.15 USD ADP Employment Change
12.30 USD GDP Data
13.00 EUR German Inflation Data
Thursday
07.00 EUR German Retail Sales
10.00 EUR Eurozone inflation data and unemployment rate
12.30 USD Core Price Index Data
Friday
12.30 USD Earnings Data & Non-farm Payrolls
14.00 USD ISM Manufacturing Data