Home Daily Commentaries GBP volatility seen on UK budget

GBP volatility seen on UK budget

Daily Currency Update

The UK budget announcement caused some volatility in the Pound yesterday, though within narrow ranges. It was confirmed that tax increases would generate £40 billion per year (1.5% of GDP), surpassing the figure proposed by Labour during the general election. Chancellor Reeves pledged to balance the current budget (covering day-to-day spending with tax revenue) initially within five years and later adjusted to three. However, full budget details revealed that borrowing is projected to rise over this period.

Initially, the tax increases are not expected to fully offset higher spending, with the Office for Budget Responsibility estimating a net boost of 0.5% to GDP next year. This anticipated stimulus has reduced expectations in financial markets for the Bank of England to cut rates aggressively. Since midday yesterday, GBP/USD has fluctuated between 1.2945 and 1.3030, while GBP/EUR has moved from a pre-release high of 1.2025 to lows of 1.1930.

Key Movers

With the UK budget now absorbed, market attention shifts to the upcoming U.S. elections next week. Today, however, brings inflation data from both Europe and the U.S., as well as additional U.S. jobs data. Europe's flash CPI data will be released at 10 a.m., with core year-on-year inflation (excluding food, energy, alcohol, and tobacco) expected to dip by 0.1%, while headline CPI is anticipated to rise by 0.2%. In the U.S., the core PCE price index is forecast to increase from 0.2% to 0.3% month-on-month.

Following JOLTS data earlier in the week, today’s U.S. employment figures will provide a preview ahead of key jobs data tomorrow. EUR/USD opens higher today at 1.0860, after reaching a weekly low of 1.0770 on Tuesday.

Expected Ranges

  • GBP/USD: 1.2940 - 1.3030 ▲
  • GBP/EUR: 1.1930 - 1.2010 ▲
  • GBP/AUD: 1.9650 - 1.9870 ▼
  • EUR/USD: 1.0760 - 1.0890 ▲

Written by

Alex Hartley

OFXpert

Driven by a passion for currency markets and data movement, Alex finds great appeal in the dynamic nature of the industry. With over 20 years of experience, Alex works closely with businesses to understand their foreign exchange requirements and align them with solutions. Placing a strong emphasis on customer service, he takes pride in nurturing long-lasting relationships with clients.