The fallout from The UK budget earlier this week has seen Pound Sterling drop by roughly 1% against both The Euro and US Dollar as the biggest tax rises in a generation were announced. A big driver for the downward movement in Sterling was also due to a massive sell-off of GBP assets as well as Government Bonds rising to 4.5% for the first time in a year. Usually, such an increase in bond returns would lead to further foreign investment and therefore prop The Pound up further, however this mechanism has reacted differently since Wednesday’s budget as it seems international investors are increasingly concerned about the government’s plans.
Initial expectations for The Bank of England were back-to-back rate cuts, starting next Thursday. However, markets are now only pricing in less than 100 basis-points worth of cuts between now and the end of next year which on the face of it opens up a possible differential of nearly two percentage points on rates between The Bank of England and The European Central Bank.
New projections from the Office for Budget Responsibility also haven’t helped Sterlings cause as they predict that The UK will experience weaker growth within the economy over the next few years. Although Rachel Reeves has touted a spending injection of nearly £70bn over the next 5 years, almost £40bn of this will come from tax increases, and when you consider that the plan seems to be spending and borrowing up to be coupled with slow growth, it would represent poor returns for UK taxpayers and leave international investors with many questions potentially unanswered.
Moving into this afternoon, the main focus on the economic calendar is the release of Non-Farm Payroll data in The US. It’s expected that The US economy will have added nearly 130,000 jobs, which is down from September’s figures by over 120,000. It should be noted however, that the private sector survey showed strong jobs gains, and jobless claims yesterday were also lower than first thought. This release is widely seen as an important factor for The Federal Reserve when making decisions on future interest rate decisions, but it would need to be a massive shock figure for The Federal Reserve to deviate away from their expected 25 basis-point cunt next week.
GBP/EUR 1.1880 GBP/USD 1.2900 GBP/AED 4.7400
GBP/AUD 1.9655 GBP/CHF 1.1197 GBP/CAD 1.7975
GBP/NZD 2.1626 EUR/USD 1.0848 GBP/ZAR 22.7684