Pound Euro Exchange Rate Accelerates as UK Budget to Expand Fiscal Support

GBP/EUR Exchange Rate Buoyed by Budget Optimism 

The Pound to Euro (GBP/EUR) exchange rate is ticking higher this morning, on the back of reports that the UK’s upcoming budget will include more fiscal support. 

At the time of writing the GBP/EUR exchange rate is trading at around €1.1537, up roughly 0.2% from this morning’s opening levels. 

Pound (GBP) Firms as UK Budget to Defer Tax Increases 

The Pound (GBP), is on the rise this morning, amidst reports that Chancellor Rishi Sunak’s upcoming Budget will defer plans for significant tax increases. 

Instead, the Budget, which will be published early next month, is said to now be tailored to help support Boris Johnson’s plans for a cautious reopening of the UK economy. 

Johnson signalled on Wednesday that any path out of lockdown will need to be slow, and sustainable to ensure that the UK’s current national lockdown is also its last. 

Government sources suggests Sunak’s budget will focus on protecting jobs and providing support to sectors worst hit by the lockdown, such as the hospitality industry. 

GBP investors unsurprisingly welcomed the news that tax hikes would be delayed in favour of more fiscal stimulus, as it further fuels hopes for a strong rebound in the UK economy this year. 

Euro (EUR) Supported by USD Weakness Ahead of Consumer Confidence Figures 

At the same time, the Euro (EUR) has been able to temper its losses against the Pound this morning, thanks to its negative correlation with the US Dollar (USD). 

A fall in US Treasury yields has resulted in a modest pullback in the ‘Greenback’ this morning, lifting some of the pressure which had weighed on the Euro in recent days. 

However this upside in the Euro looks limited ahead of the release of the Eurozone’s latest consumer confidence index later this afternoon, as EUR investors brace for another gloomy reading in February’s preliminary release. 

GBP/EUR Exchange Rate Forecast: UK and Eurozone PMIs in the Spotlight 

Looking ahead to the end of this week’s session, the focus will undoubtedly be on the publication of the latest preliminary PMI  figures from the Eurozone and UK. 

Up first will be the Eurozone release, which is expected to show the bloc’s private sector continued to contract this month, abet at a more modest pace than in January which may offer some support to the Euro. 

Meanwhile, consensus forecasts predict the contraction of economic activity in the UK is likely to prove sharper than that of the Eurozone for a second consecutive month in February, which could push the Pound to Euro exchange lower tomorrow morning. 

Adding to the downward pressure on Sterling on Friday will also be the UK’s latest retail sales figures, which are expected to report a dramatic plunge in sales growth in January was all non-essential shops were shuttered as part of the latest national lockdown

Matthew Andrews

Contact Matthew Andrews