Pound euro (GBP/EUR) undermined by Autumn Budget and risk-off flows
(Updated 16:30, 31/10/24) The pound euro (GBP/EUR) exchange rate has stumbled in the second half of today’s European session as fresh concerns over yesterday’s Autumn Budget announcement have seen the pound (GBP) weaken against its counterparts.
Initially, market reaction was optimistically hopeful in the aftermath of the budget. However, as markets continue to digest the release, which included a slew of tax rises and an increase to public borrowing, Sterling is being undermined.
Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, explains:
‘Fresh nervousness has crept into markets about the prospects for the UK economy, just a day after Rachel Reeves delivered Labour’s first Budget for 14 years. Initial financial market reaction was sanguine, but investors appear to have taken flight after picking over the bones of the huge tax and spending plans…
The quiet optimism that appeared to be spreading during Rachel Reeves’ speech has evaporated and a higher risk premium has returned for UK debt. Bond yields are set to stay volatile, as institutions financing government borrowing keep a more suspicious eye trained on what the swollen investment budget will be spent on.’
Furthermore, a decisively cautious market mood has added further pressure onto GBP exchange rates on the back of its increasingly risk-sensitive nature.
The euro (EUR) is still wavering following the publication of the Eurozone’s latest inflation data earlier this morning, as the single currency remains muted against most of its rivals, firming only against its risker assets thanks to its status as a safe-haven currency.
At the time of writing, GBP/EUR is trading at around $1.1855, down roughly 0.6% from today’s opening levels.
Original article continues below:
Pound euro exchange rate recoups majority of post budget losses
The pound euro (GBP/EUR) exchange rate is trapped in a narrow range this morning following the publication of the Eurozone’s preliminary consumer price index (CPI) for October.
At the time of writing, GBP/EUR is trading at around €1.1945, virtually unchanged from this morning’s opening levels.
Euro (EUR) wavers despite better-than-expected inflation print
The euro (EUR) is trending in wide range against the majority of its peers this morning following the publication of the Bloc’s latest consumer price index (CPI).
Octobers flash reading saw both headline and core inflation print above market expectations. Headline inflation rose from 1.7% to 2%, ahead of a more modest 1.9% expectation, while core inflation held steady at 2.7% rather than slipping to 2.6% as expected.
Signs of sticky inflation within the Eurozone are dampening European Central Bank (ECB) interest rate cut bets this morning, as the odds of a 50-basis point interest rate cut in December have come down.
This has lent the single currency some modest support alongside a return to cautious trading conditions which are further underpinning the acutely safe-haven EUR.
Pound (GBP) rebounds following Autumn Budget
The pound (GBP) is managing to hold steady against the majority of its peers this morning, firming against several of its riskier rivals, following yesterday’s unveiling of the UK’s highly anticipated Autumn budget.
Throughout the address, the UK Chancellor Rachel Reeves introduced a number of expected tax rises, to the tune of £40bn, which weighed on GBP exchange rates in the aftermath of the release.
However, expectations of slower Bank of England (BoE) interest rate cuts shielded the pound from further volatility towards the second half of yesterday’s European session.
As domestic releases are absent from today’s data-calendar, Sterling will likely continue to trade on the back of yesterday’s budget.
Pound euro exchange rate forecast: minimal data to leave GBP/EUR directionless?
Looking ahead, the primary driver of movement for the pound euro exchange rate looking ahead to tomorrow will likely be market appetite for risk amid a lack of high impact economic drivers.
The only data release of note will come in the form of the UK’s finalised manufacturing PMI data for October.
As the final estimate is expected to print in line with preliminary expectations, the data will likely have little impact on GBP exchange rates.
As such, the GBP/EUR exchange rate will likely trade in line with risk dynamics, with a move to cautious trade potentially undermining the pairing whilst upbeat trade could see it firm.