Pound Euro Exchange Rate Tumbles Following Chancellor’s Speech
(Updated 14:30, 17/11/2022) The Pound Euro (GBP/EUR) exchange rate is falling this afternoon following Jeremy Hunt’s delivery of the UK’s Autumn Statement. The speech triggered Sterling volatility as expected, as Hunt announced a lowering of the highest tax rate threshold and confirmed that the UK is in recession.
Public spending cuts were also confirmed, although the health department running the NHS was exempt. The Guardian reported the Chancellor as saying that ‘public spending discipline’ must be shown through a ‘challenging period’.
Some positive news also emerged from the statement, possibly capping losses for the Pound. The National Living Wage is going up by almost £1 an hour and benefits are rising to match soaring prices. However, the overall reaction appears to be gloomy – although this may change once markets and the public have had a chance to digest the announcement properly.
One final factor which may be detracting from Sterling popularity is the Chancellor’s eagerness to blame ‘unprecedented global headwinds’ for the situation the economy is in. Critics of the Conservative government are already retaliating that the party’s chaotic leadership changeover and unsympathetic fiscal policies have played no small part in the Pound’s weakened state.
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GBP/EUR Exchange Rate Trends Sideways as Budget Speech Awaited
The Pound Euro (GBP/EUR) exchange rate is trading in a narrow range this morning as investors brace for the UK autumn budget. Meanwhile, October’s finalised inflation data inspires movement in the Euro (EUR). Last month’s reading printed slightly below expectations while remaining higher than September’s release.
At the time of writing, GBP/EUR is trading at €1.1459, virtually unchanged from today’s opening levels.
Pound (GBP) Fluctuates, Markets Brace for Autumn Statement
The Pound (GBP) is trading in a mixed range this morning as Sterling traders anticipate an austerity-focused speech from the UK Chancellor.
According to The Independent, Jeremy Hunt is expected to lower the top income tax threshold and keep the pensions triple lock. The latter could boost the Pound, inspiring a sense of security as inflation ticks higher still.
Nevertheless, the Chancellor is also expected to announce £35bn in spending cuts, which is unlikely to be received well. Although Hunt is expected to announce measures to address the cost-of-living crisis, for many it is too little too late.
People on benefits have likened themselves to ‘the walking dead’, echoing weak market sentiment. One low-income parent told reporters: ‘I think it’s too late. All the important things we need to survive are slowly being taken away.’
The chief executive of the Resolution Foundation think tank, Torsten Bell, confirmed that the UK faces a ‘grim economic outlook’. He also added that he expects unemployment to rise.
From 11.30am UTC, when the Autumn budget live TV coverage begins, Sterling is likely to face a period of volatility. The currency will ultimately trend up or down on markets’ reception of the Chancellor’s statement.
Euro (EUR) Faces Downside as Eurozone Inflation Increases
The Euro is weakening against the majority of its peers at the time of writing. October’s finalised inflation reading confirmed that consumer prices increased over the past year – although by slightly less than anticipated.
Today’s release printed at 10.6% rather than 10.7% – still a 0.7% increase on September’s figure. Eurostat economists stressed that a year earlier the rate was 4.1%. They added that the highest contribution to inflation this past year came from energy, followed by food, alcohol & tobacco.
Commenting on the initial reading of 10.7%, Bert Colijn, a senior eurozone economist at ING, said:
‘The low prices on the wholesale market in recent weeks are clearly not yet translating into declining prices for households.
In fact, it’s likely that this will only happen in a few months’ time and even that is a big ‘if’ because it depends on uncertain factors such as energy supply and the weather of course.’
Weakening the single currency further, it appears that October’s considerable inflation reading is unlikely to translate into larger interest rate hikes.
According to Bloomberg, momentum is lacking among European Central Bank (ECB) policymakers for another aggressive 75 basis-point step. Nevertheless, the inflation surge may yet convince policy makers otherwise.
GBP/EUR Forecast: Exchange Rate to Trade on Autumn Budget Reception
Looking ahead, the UK’s autumn statement from Chancellor Jeremy Hunt is likely to be the main factor influencing the Pound Euro exchange rate. A lack of any other significant data today means both currencies are exposed to the repercussions of spending cut announcements in the UK.
Into tomorrow, UK retail data may affect GBP/EUR. Sales are expected to have risen in October, potentially inspiring a Sterling uptick in the wake of today’s major announcement.