By Nick Harrison
Wednesday saw the release of Rachel Reeves’ Budget, which announced an increase in taxes to the tune of £40 billion. Her plans to tax, borrow and spend more money to protect public services and boost investment were met by a typically raucous House of Commons, and ended up being one of the most controversial Budgets the UK has seen for a long time.
Thankfully, the average employee was not subject to tax increases, however, the government made the decision to increase employers’ national insurance contributions by 1.2%, to 15%, from April 2025. This was probably the boldest decision in the Reeves Budget and one that will have most effect on the financial markets due to the implications it may have on economic growth in the UK. While there will be allowances for smaller businesses, the bigger picture will now pan out to see how the economy continues to perform and how larger businesses will cope with this increase.
Further announcements on fuel duty, education, housing, energy etc.. were delivered, but the budget plan is a long term one and these changes will be judged by how or even if the economy grows. The Office for Budget Responsibility has set out a pretty gloomy growth forecast over the next few years though, so economic data releases will be more important than ever as the dust settles and investors start to digest how this will affect the FX market. The market on Thursday afternoon though, reacted strongly to the enormity of the government’s borrowing requirements and ended up selling the pound off against the USD & EUR. Sterling lost a cent and a half against the US Dollar and nearly 2 cents against the Euro. Just to put things into perspective – If you had bought EUR 200,000 on Wednesday morning compared to Thursday afternoon, it would have cost you over £2,000 more after the sterling selloff. Our regular market updates and proactive approach to what is happening in the FX market can help you make informed decisions about the best time to convert your currency and potentially save yourself a large amount of money. Please make sure you keep in contact with your account manager, who can keep you fully updated on these major cost implications to your currency requirements.
As you have almost certainly heard in the news, the US Presidential Election happens on November the 5th. Harris and Trump are running a very close race and it seems the US Dollar is being seen as a safe haven currency in the short term until the result is announced. Investors tend to invest in the US Dollar when risk is off the table, so we have therefore seen a stronger Dollar towards the latter part of the week against other major currencies. Be prepared for plenty of market volatility as the results start to come in next week – the world will be watching !
Focus remains on the US as we see the monthly Non-Farm Payrolls figure released at 12.30pm today. Job creation is a major indicator of consumer spending and this accounts for a majority of overall economic activity in that country. The FX market always gives this figure a large amount of interest, so with the market looking a little delicate just now, we could see some further volatility off the back of this release. The previous number came in at an additional 254,000 jobs and today’s forecast is an additional 108,000, so the week could end with more activity in the FX market.
As if this isn’t enough, we have the Bank Of England’s Monetary Policy Committee announcing their interest decision on Thursday. Indications are that they will cut the rate next week and also at the following meeting in December. Interest rate cuts normally weaken that country’s currency, so it will be very interesting to see how much the rate is cut by and how many members vote for it.
Also on Thursday evening, the US Federal Reserve Bank set their interest rate too, so we could see plenty of market reaction at the end of the week.
Economic Data for Next Week
Tues 5th / Wed 6th November – US Election
Tuesday 3.30am – Australian Central Bank rate announcement
Tuesday 3pm – US ISM Services PMI
Thursday 7th Midday – UK BoE Interest Rate Decision
Thursday 1.30pm – Unemployment Claims
Thursday 7pm – US Federal Reserve rate announcement
Thursday 7.30pm – Fed Press Conference