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.
To protect your budget from all this week has in store, lock in today’s GBP/EUR rate with a call to your account manager on 020 8003 4915.
After months of stories of stagflation and economic indicators that UK households were under too much pressure, this news threatened to see the markets lose confidence in the pound and invest elsewhere.
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. The announcement represents billions more in annual spending, and the money largely comes 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.
While the pound looked to be the day’s loser but became the winner, it was a reverse story for the dollar. After an apparent comeback from a slump in the market on Monday, with Wall Street investors worrying US tech shares were overvalued, the decline restarted on Tuesday.
The culprit was a survey that revealed a larger-than-expected dip in consumer confidence, the steepest decline since August 2021. It’s also not helping the US that, while the UK and Eurozone countries are increasing their defence budgets, investors expect the money will go to domestic companies like Britain’s BAE and Germany’s Rheinmetall.
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.
Still, it’s not all good news for the eurozone, despite the euro seeing gains over both the pound and the dollar. 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.
