Home Daily Commentaries IMF criticises UK government’s latest budget

IMF criticises UK government’s latest budget

Daily Currency Update

Adding pressure on the pound, overnight we saw the International Monetary Fund openly criticise the UK government and its latest tax cutting proposals. Global ratings agency Moody's has also warned the UK government that unfunded tax cuts could lead to larger budget deficits and higher interest rates. The IMF stated that Kwasi Kwarteng's £45 billion mini-budget spree risks sharper interest rate rises and could also increase income inequality. The pound dropped by over 1% overnight versus the US dollar on the news, and hit low's in the 1.06's.

The withdrawal of mortgage products hit unprecedented levels overnight, according to analysts. Mortgage lenders in the UK are concerned over the unprecedented levels of interest rate hikes and their lack of ability to forecast where the Bank of England may take interest rates over the coming months and year.

GBP/EUR trading is trading around 1.1150 at the start of Wednesday, having been as low as 1.0793 on Monday. That’s a 3.25% fluctuation across 3 days, and the most volatile the currency pair has been since the Brexit referendum in 2016.

Key Movers

The energy crisis in Europe takes a further turn for the worse as there has been accusations that the gas leak from the Nord Stream pipeline was due to deliberate Russian acts of sabotage. The Swedish foreign minister has added that this is not in Swedish territory and thus an international incident. This could cause further disruption to energy supplies across Europe over the winter months, bringing further cause for global risk aversion and the strengthening of the US dollar.

Christine Lagarde from the ECB speaks today, which will be watched closely for signs of what the central bank may do next. There could be volatility around her speeches especially if interest rate hike clues are given. EUR/USD remains on the back foot, dropping into the 0.95's overnight, with some banks forecasting the pair to head towards 0.90 before year end.

Expected Ranges

  • GBP/USD: 1.0580 - 1.0745 ▼
  • GBP/EUR: 1.0945 - 1.1205 ▼
  • GBP/AUD: 1.6450 - 1.6820 ▼
  • EUR/USD: 0.9470 - 0.9625 ▼