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Sunak continues spending spree

GBP - British Pound

Yesterday UK Chancellor of the Exchequer, Rishi Sunak, unveiled his latest Budget with a focus on continued spending to support and rebuild an economy reeling from the coronavirus pandemic. Some of the main measures included an extension to the job furlough scheme through to September; a six month extension to the £20 increase in Universal Credit; support for the self-employed extended through to September, and a rise in the minimum wage to £8.91.

There was also extra cash to support the arts, sports, as well as freezes on duty on alcohol to help the hospitality sector which will also benefit from the planned increase in the limit of contactless payments from £45 to £100.

Much of the Budget had already been leaked in the days leading up to it and the key message was that now was not the time to start paying down the debt incurred from the worst economic downturn in over three centuries. Its likely next year’s budget will signal some personal tax rises when hopefully the UK economy is back on its feet. The one piece of fiscal tightening Sunak confirmed was a rise in corporation tax from 19% to 25% by April 2023.

Given that the UK has the lowest corporation tax rate in the G7 nations this was the one area that the government had a little wriggle room to claw back some of the hundreds of billions spent supporting the UK over the past 12 months.

Sterling was little moved by the Budget as most of the main details had been revealed beforehand, so GBP/USD continued to trade between 1.39 and 1.40, it currently trades around 1.3945. GBP/EUR is also within recent ranges trading at 1.1580.

Key Movers

US Treasury yields continue to dominate the financial markets with the benchmark 10 year bond rallying again which lead to some dollar strength yesterday afternoon. The large swings in exchange rates seen last week seem to have calmed somewhat. However, EUR/USD is again dropping towards the 1.20 handle as equity markets around the world show a mixed picture of losses and gains.

The euro managed to fend off a play to break below 1.20 earlier this week so it will be interesting to see if the key level can be held again given the backdrop of the slow vaccine roll out from the EU.

Yesterday’s data from the States came in under par with both the monthly ADP Non-Farm Employment Change and the ISM Services PMI both missing target. It’s a quiet day today, aside from a speech from Federal Reserve Chairman Jerome Powell just after 5pm. Powell is due to discuss the health of the US economy in an online event hosted by the Wall Street Journal. Analysts will be looking for any hint of potential tapering of its asset purchase plan later this year.

Tomorrow sees the latest US Jobs Report with the headline Non-Farm Payrolls report expected to show an extra 185k added to the workforce for February. EUR/USD currently trades at 1.2040.

Expected Ranges

GBP/USD: 1.3880 - 1.40 ▼

GBP/EUR: 1.1525 - 1.1610 ▲

GBP/AUD: 1.7815 - 1.7970 ▼

GBP/NZD: 1.9120 - 1.9270 ▼

GBP/CAD: 1.7590 - 1.7730 ▼