Budget Day – exchange rate volatility expected.

Good Morning. It’s budget day, so we’ll have a look today at what might affect rates. First, the usual snapshot of rates as at 08:30am 22nd June 2010:

  • GBP/EUR 1.1966
  • GBP/USD 1.4739
  • GBP/AUD 1.6785
  • GBP/NZD 2.0791
  • GBP/CAD 1.5073
  • GBP/CHF 1.6350
  • GBP/ZAR 11.0738
  • GBP/JPY 133.75
  • GBP/HUF 333.29
  • EUR/USD 1.2316

What’s expected in the budget?

Tough tax rises and spending cuts are expected, all of which are designed to tackle Britain’s record deficit of £155 billion. Mr Osborne has said the Budget will set out necessary plans to bring down borrowing over the next four years and how this will be divided up between spending cuts and tax rises.

The government says borrowing levels inherited from Labour are unsustainable and delaying action will damage market confidence in the UK and store up worse financial problems for the future.

The chancellor is expected to announce a number of revenue-raising measures, including a levy on bank profits, an increase in capital gains tax and rises in cigarette and alcohol duties while a change in aviation tax is also expected. Other measures will include a cut in corporation tax, a 2 year freeze in council tax and the scrapping of Labour’s planned 1% rise in employers National Insurance.

How will this affect exchange rates?

It’s impossible to say. We already know that it’s going to be a gloomy budget. Markets will have for the most part already priced this into rates.

What will be key, is if the cuts are much worse than expected, which could well weaken the pound. It all depends if there are any surprises at 12:30pm today.

While aggressive fiscal tightening would help keep sovereign credit risk concerns at bay and support the pound, analysts say the pound could also come under pressure.

A really tight budget would reduce the risk side of Sterling which could spur investment, however that would be offset to a large extent by the monetary policy implications; the tighter fiscal policy is, the looser that monetary policy is likely to be and the result would be a weaker pound.

I need to buy foreign currency, should I buy now or wait?

That has to be your decision. Rates could move either way today resulting in a gain or a loss. What you can do is use Stop loss orders to your advantage, whether you are buying or selling. You could place a stop loss at a level a little below the current rates. This way, if markets move your way after the budget you can take advantage, while covering yourself against a drop. Click the links below to make an enquiry today to find out more about these kinds of tools.

Keeping up to date

It’s likely to be a volatile day. You can keep abreast of developments today when the budget is announced on our Twitter page. it will be updated throughout the day with the latest news and effects of the budget on Pound to Euro, Pound to US Dollar and other major exchange rate pairs.

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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.

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