Over the weekend sterling climbed to a new highest point since the early spring of 2022 against the euro. It is now 5.5% stronger than this time last year and around 7% stronger than the average of the past five years. Sterling continues to struggle against the US dollar, having lost roughly two cents since the election on Tuesday.
Is GBP/EUR’s new high more down to sterling’s strength or the euro’s weakness? The euro has certainly been on the back foot since the US election result, falling between 2% and 0.5% against most rivals and 1.75% down against a basket of currencies. Sterling has had its ups and downs since the result but overall the sterling index is only down by around 0.35% since the result.
While the re-election of Donald Trump could be bad news for the UK economy it is likely to be considerably worse for Europe’s, with tariffs on goods exports and the potential withdrawal of aid to Ukraine.
The pound has been pegged back by the drop in stock markets as British businesses count the cost of the budget the previous week. Retailers, caterers and the entertainment sector will all suffer from the lowering of the National Insurance contribution starting level from £9,100 to £5,000. Shares in baked goods retailer Greggs fell by 6.8% and in M&S by 4.5%. Sainsbury’s says it faces an extra £140m bill.
On Thursday the Bank of England (BoE) made only its second interest rate cut for several years, dropping another 25 basis points. While a larger cut was an outside possibility, the previous week’s tax and spending budget is viewed as inflationary by the BoE and so is likely to curtail future interest rate cuts. Good news for sterling, if another blow for business.
However, there could be good news for some big companies. HMRC has to repay £700m in tax to various British businesses after the courts ruled against an EU state aid clampdown.
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