All eyes on today’s budget release from the UK
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Daily Currency Update
With markets squarely focused on today’s UK budget and the likelihood of further tax increases, broader European sentiment remains cautious.
European Central Bank policy is “in a good place,” according to the Dutch and Irish central bank governors on Tuesday, reinforcing the ECB’s long-held message that has kept expectations for additional rate cuts restrained. “When it comes to inflation itself… I think we’re in a good place right now,” Irish central bank chief Gabriel Makhlouf said at a conference in Dublin, echoing remarks by Olaf Sleijpen. Makhlouf noted lingering concerns around services inflation and the outlook for food prices.
In the UK, retailers reported the sharpest fall in confidence in 17 years, with sales declining again ahead of the budget announcement expected to feature tax hikes. The Confederation of British Industry’s measure of annual retail sales dropped to -32 from -27 in October. While expectations for next month improved slightly, the quarterly gauge of business sentiment plunged to -35 from -10 — its lowest since late 2008 during the height of the global financial crisis.
Meanwhile, the U.S. dollar weakened on Tuesday as investors reassessed the likelihood of a Federal Reserve rate cut next month following dovish signals from policymakers. Fed Governor Christopher Waller said the labour market had softened enough to justify a quarter-point cut in December, though any further moves will depend on extensive economic data that has been delayed by the government shutdown. The Japanese yen, meanwhile, remained under close scrutiny for potential intervention.
Key Movers
Ahead of today’s UK budget, several potential measures are under consideration. Chancellor Reeves is reportedly weighing a two-year extension of income tax threshold freezes until 2030, which could generate around £8 billion annually. Plans also include lowering the amount of salary workers can divert into pension pots before incurring social security charges, and introducing a surcharge on local taxes for properties valued above £2 million. With fuel duty frozen since 2011 despite raising roughly £25 billion a year, ending the freeze is another option that could provide a sizable revenue boost. Some think tanks have further urged higher taxes on banks to reclaim part of the substantial interest earned on reserves held at the Bank of England.
The International Monetary Fund warned on Monday that Poland must urgently address the rapid rise in its public debt, noting increasing fiscal vulnerabilities over the medium term. While strong economic growth—fuelled by robust wage increases and loose fiscal policy—has supported activity in Central Europe’s largest economy, it has also led to a sharp deterioration in public finances. Poland now runs one of the highest budget deficits in Europe. The IMF highlighted that the widening deficit is largely the result of surging expenditure, which has reached levels comparable to advanced European economies, while revenues remain closer to those of its Central and Eastern European peers.
In the U.S., consumer sentiment weakened sharply in November, with the headline index falling from 95.5 to 88.7—its second-lowest reading since April. All five components of the survey remained soft, signalling that households are increasingly cautious about current business conditions and the labour market. The dollar slipped 0.6% following the release.
Expected Ranges
- GBP/USD: 1.3165 - 1.3215 ▲
- GBP/EUR: 1.1380 - 1.1430 ▲
- GBP/AUD: 2.0275 - 2.0325 ▲
- EUR/USD: 1.1570 - 1.1620 ▲