The euro ended Tuesday up on both the pound and the dollar, although it was only negligibly ahead of sterling. USD looked to be making a late day comeback, but lost momentum and began falling again against EUR and GBP.
Tuesday could have been a bad day for the pound. Before the markets opened, Ofgem announced a 6.4% rise in the energy price cap. This further squeeze to household income means a typical household will now pay £1,849 a year on their gas and electricity, up from £1,738.
However, the day’s main story became prime minister Keir Starmer’s plans to increase defence spending to 2.5% of GDP by 2027 and 3% in the next parliament. Representing billions more in annual spending, the money largely came from a cut to foreign aid spending. Not only did the news increase share prices in arms manufacturers, such as BAE, but because the spend was announced without money being borrowed, the market seems assured that it’s an affordable uplift.
The US saw losses through the day with survey data revealing a larger than expected drop in consumer confidence, an 8% drop in the value of Bitcoin, and a hit to the US defence sector as investors chose to buy shares in European companies over American ones.
Today sees the US publish data on new home sales and the interest rate for 30-year mortgages. A decrease in sales or an increase in interest rate could be a further indicator of economic trouble.
The new German chancellor Friedrich Merz faced further hits to his country’s economy, with new data revealing both that GDP contracted by 0.2% at the end of 2024 and that consumer confidence has dropped from -22.6 to -24.7. Worse is that it was forecast to increase. Signalling more fears that the eurozone economies are stagnating. However, those numbers aren’t yet reflected in the value of the euro.
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