By Ashley Finill
Today, Chancellor Rachel Reeves will deliver the Autumn Budget in the House of Commons at 12:30pm. The Budget, which has been a major talking point for several weeks, has already caused volatility in the currency markets, with Sterling generally coming off worse.
Since Reeves announced on September 3rd that the Budget would take place today, the Pound has lost over 2 cents against the Euro, with a similar drop against the Dollar. Yesterday’s trading offered a glimmer of hope for Sterling ahead of the announcement, as the Pound clawed back nearly a cent against the Euro. This presented a great opportunity for Euro purchasers and led to a busy day on the market.
Those gains have already begun to fade this morning, with Sterling starting the day on the back foot, which is likely due to anticipation surrounding the Budget.
As for the Budget itself, the past few weeks have seen various leaks about what the next fiscal year might hold. Labour, during its campaign in 2024, promised not to increase taxes, particularly for working people. Yet two weeks ago it was reported that income tax could rise, a suggestion that was met with criticism from opposition parties and the public. Labour subsequently u-turned, insisting they will not raise income tax and said they will not break their manifesto promises.
There may well be some unexpected announcements in today’s Budget, and Sterling is almost certain to react, as we’ve already seen recently. This was also seen in last year’s budget when businesses were the focus of tax hikes, and as a result Sterling plummeted by nearly two cents within a couple of days. This shows the fragility of the Pound to such big political events.
Should you have a requirement for Euros over the coming weeks, it may be a good idea to speak to your currency consultant this morning ahead of the budget to mitigate your risk from the currency market.
USD weakness
Yesterday, the Dollar weakened against both the Pound and the Euro, as softer US retail sales and consumer confidence was posted in the afternoon. This has now raised the expectation that the FED will likely cut interest rates at their next meeting in December.
The gain on the Dollar is also likely down to the peace talks with Ukraine and Russia. When the conflict began back in 2022 the Dollar was heavily backed due to its safe-haven status. With talks of a peace deal in progress, there is still a long way to go before any agreement is made. But a meeting with the US President and Ukraine’s President Zelensky, hopefully taking place within the next few weeks, there is hope that a resolution can be made, bringing an end to the three and half year conflict.
Data remaining this week
Wednesday
New Zealand Interest Rate Decision
UK Budget
US Initial Jobless Claims
Thursday
German GfK Consumer Confidence
EU Consumer Confidence
Friday
German Retail Sales
German CPI Inflation
Canadian GDP