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Sterling remains buoyant ahead of delayed UK Budget

Thursday 27 October, 2022

Daily Currency Update

Yesterday we saw confirmation that Sunak and Hunt's budget has been delayed to 17th November, as the government wants enough time to digest the current deficit and determine how best to tackle the cost of living crisis, while calming the markets. The Liberal Democrats described the delay as a “damaging cloud of uncertainty” and analysts flagged concerns that the Bank of England will have to set interest rates before the anticipated spending cuts and tax rises. The pound hit a fresh six-week high of $1.1619 due to expectations that Sunak's new government will be a lot more fiscally prudent than the previous regime. It could cause pain in the short term for the UK economy, but will hopefully leave the country in a better state in the medium term. The UK's sovereign credit default swap has now recovered to pre 'fiscal event' levels which has helped borrowing costs for the UK government.

Key Movers

All eyes are on today's European Central Bank decision, where the expectation is that the central bank will raise interest rates by a further 75 basis points. The market will watch Cristine Lagarde's comments closely for signs of what may be next. The recent change in expectation that the US Federal Reserve will not hike interest rates as aggressively as thought may also transpire to Europe, where economic data has been not as strong as in the US. It’s been several weeks in the making, but it now seems that the EURUSD rate is responding to the lower natural gas prices and the improvement in the terms of trade position. The change in expectation in regards US interest rates has also weakened the US dollar.  

Expected Ranges

  • GBP/USD: 1.1480 - 1.1585 ▲
  • GBP/EUR: 1.1455 - 1.1585 ▲
  • GBP/AUD: 1.7845 - 1.8045 ▲
  • EUR/USD: 0.9970 - 1.0065 ▲