Sterling surges after budget

Good morning. The pound has surged following yesterdays budget. We’ll look at the reasons why in a moment, along with where rates may move in the short to medium term. First, the usual snapshot of rates as at 08:30am 23rd June 2010:

  • GBP/EUR 1.2102
  • GBP/USD 1.4865
  • GBP/AUD 1.7070
  • GBP/NZD 2.1035
  • GBP/CAD 1.5319
  • GBP/CHF 1.6451
  • GBP/ZAR 11.225
  • GBP/JPY 134.41
  • GBP/NOK 9.600
  • EUR/USD 1.2280

Sterling surges after budget

The pound gained as investors concluded that the budget yesterday addressed the fiscal concerns over the deficit, and the AAA credit rating of the UK is safe for the moment. You can read a full report on the measures here on the BBC site.

It seems George Osborne got the balance right between spending cuts and tax rises. There were no real surprises, and immediately after the budget there was little to no movement for the pound. Later in the day however when the US markets opened, the pound surged due to increased investor confidence, and this morning we’re close to new highs against both the Euro and US Dollar.

It would seem the markets have approved the budget, and it’s all to do with investor confidence. Now that there is a robust plan to reduce the deficit, investors are more confident as the UK’s credit rating is now safer than thought. Confidence in the UK has increased, and the pound has risen as a result. Given the persistent doubts over the EU economy, the UK is now a more attractive place to invest.

Will exchange rates keep rising?

Longer term worries over the impact of the significant fiscal cuts on growth in the UK economy are likely to hamper further sterling rallies. Markets have been awaiting this budget for several weeks, and now it’s out the way focus will likely return to fundamental data such as listed below.

The fact remains that the UK’s economy is not in a good position, and further gains for Sterling are unlikely. For pound to Euro rates, it’s developments in the EU that will now likely drive exchange rates. Debt problems in EU countries have weakened the Euro of late. If these problems in Greece and Spain are tackled and confidence returns, the Euro may regain strength and GBP/EUR rates would drop. If the problems continue, then the Euro will remain weak.

Concerns about high levels of debt, particularly in Greece, Portugal and Spain led to fears that some countries may be forced to default on their debt repayments. Stock markets fell as a result, and governments across Europe are now implementing spending cuts in order to cut their deficits. These cuts could undermine the economic recovery, some analysts fear.

Getting the best exchange rate

Whether you are buying or selling foreign currency, you want to achieve the best exchange rate possible. Whilst the natural inclination is to go to your local High Street bank to transfer funds abroad, this is usually a fairly expensive way of doing it. Our rates are significantly better by up to 6%. This can represent a huge saving on any currency transfers, and so click the links below to contact us today and find out how the process works, and how much you could save.

Todays Data

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.

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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