Sterling strengthens as budget impact already priced In

Daily Currency Update

The pound to euro exchange rate gained a third of a per cent last week, marking the second consecutive week of gains. This suggests that the highly anticipated budget ultimately had less of a negative impact on sterling than many in the market had expected.

While the budget itself weighed on sentiment, most of the damage had already been priced in. Weeks of Treasury briefings and mounting concerns over the scale of impending tax rises had steadily pressured the pound in the lead-up to the announcement.

Major buyers of UK government bonds (gilts) are also increasing their purchases, helped by Chancellor Rachel Reeves restoring around £22bn of fiscal “headroom” in the recent budget. This has eased concerns among investors about the UK’s debt trajectory and contributed to a more supportive backdrop for sterling.