By Simon Eastman
The recent Sterling sell off continued on Tuesday, as investors dumped the Pound as the long-term fiscal outlook for the UK turned ever bleaker.
Labour’s new welfare bill announced last week has left investors speculating how the government intend to fund the increasing costs, which will come from tax increases or spending cuts, neither of which is great news. The Pound has been on the slide since last week, falling over a cent against the Euro and over two cents against the US Dollar at its lowest point at lunchtime yesterday.
In addition, The Office for Budget Responsibility published its Fiscal Risks and Sustainability report, raising serious concerns about the UK’s longer term financial outlook, citing that if nothing was done to intervene, current fiscal policies would lead government debt to increase to 270 percent of GDP by 2070, compared to its position of under 100 percent currently, with escalating costs associated to the state pension triple lock and climate related costs – like trying to achieve net zero and extreme weather damage.
The single currency also took a boost from the early released German trade balance, showing a surplus of €18.4 billion, which came in almost €3 billion more than forecasters expected, and also took strength following President Trump’s announcement of further tariffs on 14 countries, bringing back talk of trade wars and concerns of further announcements.
GBP/USD did manage to retrace some of its earlier losses as the US markets opened, and Trump’s actions sunk in; plus, Fed chair Jerome Powell commented on “data driven” decisions surrounding interest rates, whilst not completely ruling out a cut at their next meeting later this month. Despite this, most analysts eye September as the more likely timing for their next cut, with a 25-basis point cut now at around 70 percent according to the CME Fed Watch.
Today is a day with no data releases of note, but a few European Central Bank members speaking over the day at various events around the world, all ahead of the FOMC minutes released early evening, which will give further guidance as to what the Fed might do at their next interest rate meeting.
With Trump’s tariffs back in focus and the Euro benefitting from a weaker Dollar, a day focussed on EU speeches might prove costly for those looking to buy Euros for that Place in the Sun. With that in mind, those with an upcoming requirement might benefit from speaking to the team today. Give us a call for some friendly guidance and let us help you make your money go further.