- Pound (GBP) looks to Chancellor’s budget
- Supportive measures could boost GBP
- Euro (EUR) lifted by weaker USD
- Eurozone services PMI in focus
The Pound Euro (GBP/EUR) exchange rate is treading water trading just a few pips higher on Wednesday. The pair settled -0.1% lower on Tuesday at €1.1538 at around the low of the day. At 05:15 UTC, GBP/EUR trades 2 pips higher at €1.1540.
The Pound is trading cautiously ahead of The Chancellor Rishi Sunak delivering the 2021 Spring Budget. Sunak has pledged to do whatever it takes to support the economy through its recovery from the pandemic.
The UK has experienced the largest Covid death toll in Europe and the hardest economic shock among rich countries after the economy contracted 10% in its worst slump in 300 years.
The Chancellor is expected to announce supportive measures such as extending the furlough scheme, supporting the high street and boosting support for home buyers. These measures would be considered Pound positive.
However, public finances desperately need to be fixed given the high levels of budget deficit as borrowing surged through the pandemic. There are rumors swirling that the Chancellor could consider raising corporation tax or at least setting out a timetable to doing so.
Any indication that Rishi Sunak is being too heavy handed with tax increases and spending cuts could drag the Pound sharply lower. However, the Chancellor has indicated that he is in no rush to address the UK’s largest post war budget deficit of almost £400 billion.
The Euro remained strong in the previous session thanks to a weaker US Dollar. The Euro showed resilience despite German retail sales plunging -4.5% month on month in January, an improvement on the -9.1% decline in December but still well short of the -1% fall analysts had expected.
Attention will remain on the Eurozone economic calendar with service sector PMI data for the region to be released. This is the final reading for February and is expected to confirm 45.9, a jump from January’s 41 but still some distance from 50 which separates expansion from contraction.