- Pound (GBP) slips after a 50 basis point hike
- UK mini- budget in focus
- Euro (EUR) falls across the week
- Eurozone PMI data due
The Pound Euro (GBP/EUR) exchange rate is falling for a second straight day. The pair settled -0.02% lower yesterday at €1.1447 after trading in a range between €1.1416 – €1.1496 across the session. At 05:45 UTC, GBP/EUR trades -0.16% at €1.1430. The pair is set to rise 0.4% across the week after three weeks of losses
The pound was left disappointed following the Bank of England’s interest rate decision. The UK central bank voted to raise interest rate by 50 basis points, taking the benchmark rate to 2.25, the highest level since 2008. The monetary policy committee also said that they believed that the UK economy had already fallen into recession. However, they also said that they believe that inflation will now peak at just under 11%.
The slower pace of inflation is expected due to Prime Minister Liz Truss’ energy support package, which will cap energy prices at approximately where they are now.
Today is the new Chancellor Kwasi Kwarteng’s turn. He will deliver his mini-budget. He is expected to announce an energy support package for businesses for 6 months. Another easy win will be scrapping the National Insurance increase, a policy brought in under Rishi Sunak. Furthermore, stamp duty is also expected to be scrapped. These are expensive policies that Kwarteng will be hoping will raise the level of GDP growth.
Kwarteng is looking to raise GDP growth to 2.5% through the tax cut and deregulation, up from 1.5% the average rate of growth.
The euro came under pressure this week again as risk sentiment crumbled. The market mood has been hit by the hawkish Federal Reserve monetary policy meeting amd by Putin escalating the war in Ukraine.
Today attention will be back on the economic calendar with the release of manufacturing and services business activity data. Manufacturing is expected to contract further falling to 48.7 from 49.6 in August. Meanwhile, services are expected to fall to 49 from 49.8. The level 50 separates expansion from contraction.
