Post-Budget Currency Update

By James Caley

Following the recent budget announcements on Wednesday, the pound briefly weakened against the Euro but swiftly stabilised back within its usual half a cent range on Thursday, reaching a weekly peak before returning to its regular pattern.

This resilience stands in stark contrast to the Liz Truss budget collapse, alleviating concerns for those who vividly remember it. Despite initial fluctuations, the pound seems to be standing firm.

This week’s budget aims to stimulate the UK economy with a net fiscal policy loosening of £13.9 billion (0.5% of GDP) for the 2024-25 financial year. Positive outlooks for UK growth and disposable incomes contribute to the Pound’s stability.

Importantly, the government’s announcements aren’t anticipated to significantly impact the Bank of England. In the short term, Sterling-Euro remains within a tight range, displaying a slightly bearish momentum.

Additionally, the European Central Bank (ECB) has maintained current interest rates. However, a reduced inflation forecast hints at a potential future interest rate cut, adding complexity to currency dynamics.

While GBP briefly showed weakness against the dollar on Wednesday, this downturn was short-lived. By close of play yesterday, the pound had strengthened by approximately 1 cent, almost 2 cents higher than the start of the week. This upward trend may be less tied to the UK budget and more likely a response to a series of negative data releases for the dollar in the past week. This is excellent news for those buying dollars but less favourable for those bringing funds back to the UK.

The Fed hasn’t provided any specific timings for rate cuts, similar to the ECB, but reductions are expected soon, affecting the economic outlook for both currencies.

There are no major data releases for the UK today, but the EUR GDP results at 10 am could impact the pound’s strength against the Euro. At 13:30, the US releases its Nonfarm Payrolls and Average Hourly Earnings, both of which could also influence the dollar’s relationship to the pound.