It was relatively smooth sailing for sterling yesterday, as far as budget days go. GBP/USD traded sideways, while the pound lost a little under 0.25% to the euro. EUR/USD advanced by a third of a per cent ahead of the European Central Bank’s interest rate decision today.
Far from pulling any rabbits from his hat, Jeremy Hunt stuck to the moves that had been widely reported by the media in the days before his speech. As expected, the chancellor announced a 2p-reduction to national insurance contributions. Over the course of an ill-tempered commons session full of pre-prepared jibes and heckles, Hunt laid out a budget he said would incentivise people to work.
But would it work for the UK’s economy? Helpfully, The Office for Budget Responsibility (OBR) releases its latest set of forecasts for the UK economy alongside the budget. The big revelation from this was their projection that inflation would fall below the 2% target in just a few months. Meanwhile, their next set of growth forecasts were slightly improved from the autumn — but still anaemic if we’re being honest.
The OBR forecasts will heap pressure on the Bank of England to cut interest rates soon. Inflation is still running at 4%, but being too late to loosen the cost of borrowing could fuel an extended and unnecessary recession.
It’s the ECB’s turn to face the music today. Markets are expecting it to leave interest rates unchanged, even as there is growing momentum for cuts.
Turning our attention to the US now, the number of job openings fell from the previous month by 26,000 in January. That figure had been expected to increase slightly, but major falls in the number of retail job openings fuelled the decline.
Federal Reserve chair Jerome Powell went before US congress yesterday to warn that progress on inflation was “not assured”. Market bets that the Fed will loosen rates soon have faded away in recent weeks. Powell is scheduled to make another appearance before the committee today.
Republican Nikki Haley has announced that she is dropping out of the race to become US president. Her withdrawal comes after a resounding defeat on “Super Tuesday”, the main day in the presidential primaries, and all but clears the way for Donald Trump to secure the Republican nomination.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 7898 0541 to get started.
