Pound Sterling (GBP) Remains Weak as Investors Come to Terms with Budget
The Chancellor has finished delivering his latest Budget and Pound Sterling remains weak while investors, economists and commentators assess the impact of his proposals. Osborne is set to more-than double the tax relief threshold for small businesses to £15,000, freeze fuel duty, raise the personal tax allowance and introduce new lifetime ISAs for the under-40s to help younger people save for a pension or to fund a home purchase. However, he started his speech by announcing that the Office for Budget Responsibility (OBR) had downgraded its growth forecasts for the next 5 years, as well as its inflation expectations.
Chancellor George Osborne is set to deliver his Budget to Parliament later today, causing Pound Sterling (GBP) to weaken. Investors are holding off on trading until they can decide whether or not the new measures announced – which are mostly likely to be cuts – will benefit or hinder the UK economy. The Euro (EUR) is putting on a mixed performance, while the US Dollar (USD) is strong overall; both in anticipation of high impact developments from the States which will affect the inversely-correlated currency pairing.
Imminent UK Budget Anticipation Keeps GBP/EUR Exchange Rate Weak, Cuts are Feared
George Osborne will deliver his 8th Budget to the UK Parliament during today’s London session, anticipation of which is keeping demand for the Pound weak today. As the Chancellor continues to eye his target of a budget surplus by the 2019/20 fiscal year, expectations are that today’s spending measures will include another round of heightened austerity. The Chancellor has previously suggested that, in order to meet his target, he needs to cut another £4 billion in spending.
Economists are expecting that Osborne will miss his current deficit target of -£68.9 billion for the 2015/16 fiscal period, thanks to the UK economy being -£18 billion smaller than initially thought. It is anticipated that many of the cuts announced in today’s Budget won’t be implemented until after Britain’s EU referendum in order to avoid creating additional political tension between the electorate and Westminster.
Meanwhile, French President Francois Hollande will not have welcomed today’s downgrade in France’s economic forecast from the country’s central bank Governor, Francois Villeroy. Villeroy, who is also a member of the European Central Bank’s (ECB) Governing Council, says the ECB have revised growth predictions for the Eurozone down to 1.4%, adding that he expects France’s to be even lower.
The news will give the President a headache as economists claim 1.5% growth is the minimum expansion required in order to drive job creation and reduce unemployment. Hollande, who is intending to run for President again in 2017, pledged to cut joblessness while in office, so a failure to do so will severely hamper his chances of re-entering office.
As well as today’s Budget statement, UK unemployment figures are due out. The only data due out for the Eurozone is construction ecostats, although the ECB are holding a Non-Monetary Policy Meeting, while ECB President Mario Draghi is set to speak at the end of the European session.
Approaching CPI and Federal Reserve Policy Meeting Keeps Pound Sterling to US Dollar (GBP/USD) Weak
Today should promise significant volatility for the US Dollar, with a slew of data releases and a key announcement by the Federal Reserve. The day’s data encompasses housing data, industrial production figures, crude oil stocks and the key Consumer Price Index figures for February. Core inflation is expected to have grown at a consistent pace on the previous month, while the non-core CPI is anticipated to fall by half a percentage point to 0.9% year-on-year (YoY).
The Federal Reserve will also announce their latest changes, or lack of, to monetary policy as well as releasing their policy statement. While traders aren’t expecting a change to interest rates, they are hoping that the accompanying report will give an upbeat view on the US economy, which would pave the way for hikes in the coming months.
Current GBP, EUR, USD Conversion Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading around 1.2735, while the Euro to Pound Sterling (EUR/GBP) exchange rate is currently trending in the region of 0.7852.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trading in the region of 1.4125, while the US Dollar to Pound Sterling (USD/GBP) exchange rate is currently trending around 0.7078.