- Pound (GBP) rises ahead of the fiscal statement
- Tax rises and spending cuts are expected
- Euro (EUR) slips before EZ inflation data
- ECB reiterate commitment to rate hikes
The Pound Euro (GBP/EUR) exchange rate is rising after a flat finish in the previous session. The pair fell -0.2% yesterday, settling at €1.1454 after trading in a range between €1.1393 – €1.1479. At 08:45 UTC, GBP/EUR trades +0.33% at €1.1492.
The pound is rising ahead of the UK Autumn Budget, which is expected to see the Chancellor raise taxes and cut public sector spending to fill a £55 billion black hole in UK public finances. The budget will be set around the Office of Budget Responsibilities forecasts which are expected to show the UK falling into a recession in 2023 as high inflation and rising interest rates hit households and businesses.
The fiscal statement comes after data yesterday showed that inflation rose to a 41-year high of 11.1% year on year in October, up from 10.1% in September, driven higher by surging food and energy prices. The data supports the view that the BoE will need to continue hiking interest rates aggressively to rein in inflation. However, should the Autumn Budget see strong fiscal tightening and weakening demand, the BoE have less work to do hiking rates, which could pull the pound lower.
The euro is falling in early trade as the common currency awaits its next catalyst. Attention is turning to Eurozone inflation data, which is expected to show that consumer prices in the region hit a record high of 10.7% year on year in October as food and energy prices continued to rise.
Currently, over half of the 19 countries in the eurozone are experiencing inflation in double digits. Hot inflation pressurizes the ECB to aggressively hike interest rates at the December meeting to try to bring inflation under control.
ECB Vice President Luis De Guindos said that the ECB would do whatever is necessary to get inflation back to 2%.