How will the budget affect exchange rates?

Good morning. Rates remain fairly unchanged as markets await the emergency budget from the UK tomorrow. Today we’ll look at the effects of the budget on the pound, and a breakdown of the weeks data. At 08:30am this morning, rates are as follows:

  • GBP/EUR 1.1970
  • GBP/USD 1.4879
  • GBP/AUD 1.6805
  • GBP/NZD 2.0824
  • GBP/CHF 1.6422
  • GBP/HUF 332.61
  • GBP/CAD 1.5117
  • GBP/JPY 135.02
  • GBP/AED 5.4604
  • EUR/USD 1.2427

Budget

All eyes are now focused on the budget and how this may affect exchange rates. The budget is expected to contain large fiscal cuts. Rather than go over each aspect of the expected announcements here, you can read a detailed outline of what’s expected to be announced on the BBC site here.

We’re only really concerned with the effect on exchange rates.

How may the budget affect exchange rates?

It’s all to do with investor confidence. If there are sweeping moves that mean the UK is a less attractive place to invest, the pound will probably drop. Recently David Blanchflower, ex member of the MPC, said that there may well be a double dip recession. This would mean the pound would become weak, and if fiscal cuts are more than markets anticipate, expect the pound to fall.

If there are no surprises in the budget, and markets think that moves will help the UK recover and spur investment, in the medium term the pound could rise. So we are in limbo at the moment awaiting tomorrows news.

After steadily increasing, rates may well be at a peak at the moment, and the steady out performance of Sterling is starting to look stretched; we think the rally is running out of steam.

However, ongoing problems in the EU are pulling in the opposite direction. If there are continued concerns in the Eurozone, then the single currency could become weaker and pull rates the other way.

Both the Euro and Sterling are weak at the moment, and developments this week may well cause rates to move in either direction.

Whether you’re buying or selling foreign currency, the market volatility this week could catch you out. Contact us today to discuss the options and tools we have to protect against adverse rate movements, and help you achieve the best exchange rates.

This weeks data

Monday
After house price data yesterday evening, today is quiet data wise. Markets await the budget. Vehicle Sales from Australia is the only data of note.

Tuesday
Budget day which is covered above. Elsewhere, there is IFO Business Climate, Expectations and Current Assessment. In a nutshell, they’re reports which are closely watched as an early indicator of current conditions and business expectations in Germany. It’s the biggest economy in the EU, and so can affect the value of the Euro. Consumer confidence from the EU and Home sales data from the US end the day.

Wednesday
Consumer Confidence and Inflation data from the EU may cause some volatility in GBP/EUR rates. For the UK, Sterling will likely be driven by the recent Bank of England minutes, fallout from the budget, and mortgage approval data. In the US we have an interest rate decision, and also the FOMC minutes. GDP data from New Zealand rounds off the day.

Thursday
Other than some spending data and Industrial measures from the EU, today is mainly state side focused. We have Jobless claims from the USA along with Durable goods orders. As those durable products often involve large investments they are sensitive to the US economic situation. Generally speaking, a high reading could cause GBP/USD rates to drop. Some import and export data from New Zealand late in the day could cause volatility for the Kiwi Dollar.

Friday
Again US focused, we’ll be watching the Gross domestic product data from the US. It is a gross measure of market activity because it indicates the pace at which a country’s economy is growing or decreasing. Again, a high reading may well cause dollar rates to drop.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what’s happening in the currency markets.

Foremost Currency Group

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