Sterling lower after budget

Good Morning. Yesterdays budget was largely political and had little impact on rates. The pound fell slightly across the board, however gains were made on GBP/EUR after the Euro weakened on Portugal’s credit rating being downgraded and continued fears over Greece. At 08:30am rates are as follows:

  • GBP/EUR 1.1204
  • GBP/USD 1.4930
  • GBP/AUD 1.6369
  • GBP/NZD 2.1129
  • GBP/CAD 1.5239
  • GBP/ZAR 10.988
  • GBP/JPY 137.11
  • GBP/CHF 1.5978
  • EUR/USD 1.3322
So what effect has the budget had on Sterling exchange rates? The pound fell after the budget as it did little to temper concerns over Britain’s mounting deficit.
Finance minister Alistair Darling lowered his forecasts for public borrowing and confirmed plans to halve the deficit in four years, although analysts said the budget presentation was short on details on how this would be achieved.

The budget was largely political, with nothing to boost confidence in the markets. As the budget had little to do with the economy, and all to do with politics, I’m not going to give it much time today. You can read a very good analysis on the BBC site here.
As far as the currency markets are concerned, we were looking for clear robust plans on how the deficit will be cut. There weren’t any.

Here you can see the forecast for the UK deficit. Even though the forecast are quite optimistic, it still shows the huge problem. Our debt is the biggest in the G20, and that’s what’s keeping the pound weak. It looks like we’ll have to wait until after the election until a clear plan is outlines.
Portugal and Greece weakens Euro
The euro has fallen to its lowest level against the dollar for 10 months as European Union leaders disagree on how best to deal with Greece’s debt crisis. leading rating agency’s move to cut Portugal’s credit rating on Wednesday has also forced the euro lower.
Against the dollar, the euro fell to $1.333, its lowest level since early May last year. Against the pound, it fell by 0.3% to 89.338 pence.
The fact that Portugal has had there credit rating downgraded should ring alarm bells for the UK. It shows that credit rating downgrade risks are real, and the risk to the UK having their credit rating downgraded is also very real. If this were to happen then the pound would plummet.
So, we have a slight rise in GBP/EUR rates caused by Euro weakness. Sterling is fundamentally unstable at the moment, and so those that need to buy Euros should consider fixing a rate if they wish to protect against the market falling if we have any more bad news from the UK.
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