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Pound Drops against US Dollar and Euro after Brexitless Budget

The Pound has seen its losses against the Euro deepen today, with a drop of -0.4%. This follows the European Central Bank (ECB) press conference, which saw ECB President Mario Draghi launch a stalwart defence of the Euro and Eurozone by declaring that deflation was no longer a concern.

Predictably, Draghi did not muse on inflation moving too far in the opposite direction, but his comments were nonetheless enough to trigger a hefty Euro appreciation against both the Pound and US Dollar.

US news today has been limited and generally damaging, with the initial jobless claims for March rising by more than expected.

[First Published 11:00 March 9th 2017]

While the budget has generated headlines with increased taxes for the self-employed and a planned £2bn going towards social care, more concerns have been raised by a distinct lack of focus on Brexit.

Guardian Deputy Political Editor Rowena Mason highlighted this irregularity;

‘There were just two vague references to the budget paving the way for a brighter future as the UK begins its negotiations with Brussels. Nor was there any mention of provisions for the possibility of a multibillion-Pound Brexit “divorce bill” that some in the EU will want the UK to pay as it leaves the bloc. In contrast, the headlines around the Autumn Statement last year were about Hammond’s admission that the Brexit vote would force the government to borrow £122bn’.

Brexit aside, the budget has also raised ire by breaking a Conservative manifesto pledge from 2015 by raising taxes for the self-employed, something explicitly ruled out four times in the original election document.

While the Pound has suffered due to a generally disappointing budget statement, the US Dollar has conversely risen, posting a 0.2% advance against Sterling. The latest support has come from the ADP employment change report, which posted a much higher-than-expected rise in the number of employed persons in February. Originally, a 190k figure was forecast; this was massively surpassed by the actual 298k result.

The Euro has also advanced today, climbing by 0.3% against the Pound and by a lesser amount against the US Dollar. Eurozone data has been sparse so far, only showing a slight rise in Dutch inflation in February.

The main economic event today will come from the Eurozone when the European Central Bank (ECB) makes its March interest rate decision.

No change is forecast from 0%, however, so the following press conference from ECB President Mario Draghi will have a greater impact on the Euro.

Given the rise in Eurozone inflation as well as rising fears about a populist surge to power in the Netherlands, France and Germany, Draghi could alleviate existing concerns by promising to act in response to any uncertainty. That said, hints of an interest rate hike are still expected to be a long way off.

The next major Pound and US Dollar movement isn’t likely until Friday, when GBP moves could be triggered by the January trade balance. Given that this previously posted a sizable deficit of -3.30bn, the Pound may make no real advance if it remains firmly in the deficit range.

Further US jobs figures are due on Friday – the highly influential non-farm payrolls report. If payrolls rise substantially and unemployment drops from 4.8% to 4.7% as forecast, the US Dollar may rise against the Pound and Euro by the end of the week.

Current GBP USD EUR Interbank Exchange Rates

At the time of writing, the Pound to US Dollar (GBP USD) exchange rate was trading at 1.21 and the US Dollar to Pound (USD GBP) exchange rate was trading at 0.82 today.