GBP/EUR: Pound Lower vs. Euro As Brexit Politics Drive Trading
  • Pound (GBP) rises for a third straight day
  • Chancellor Hunt could announce some tax cuts
  • Euro (EUR) falls ahead of retail sales
  • ECB rate decision is tomorrow

The Pound Euro (GBP/EUR) exchange rate is rising for a third straight session. The pair rose 0.1% in the previous session, settling on Tuesday at €1.1698 and trading in a range between €1.1679 – €1.1724. At 11:00 UTC, GBP/EUR trades +0.04% at €1.1704.

The pound is heading higher ahead of the Chancellor’s budget, where Jeremy Hunt will be walking a fine line between wooing voters and balancing tight public finances.

Jeremy Hunt is widely expected to announce personal tax cuts, possibly aiming for a 2p cut to the National Insurance payroll tax. Tax cuts are considered inflationary which could boost the pound.

However, it’s also worth noting that Chancellor Hunt’s fiscal headroom is limited by the fact the UK tipped into recession at the end of 2023 and by the Bank of England pushing back interest rate cuts, which has caused borrowing costs to rise.

With inflation still double the Bank of England’s 2% targets, investors are eyeing the possibility of an initial rate cut by the Bank of England in August.

As well as any moves by the chancellor, the pound will also be watching for the growth and inflation forecasts by the Office of Budget Responsibility.

Still, economic data yesterday revealed a pickup in UK service sector activity in February, marking the strongest growth since May 2022 and suggesting that a potential recovery from last year’s recession is in motion.

The euro is ticking lower ahead of eurozone retail sales data due shortly, which is expected to show that sales edged higher in January, up 0.1% month to month after falling 1.1% in the previous month.

However, the main focus is on the ECB’s interest rate decision tomorrow, where the central bank is expected to keep rates unchanged at 4% and could reiterate that it needs more evidence from data that inflation is returning to the 2% target before it starts to cut rates.

New staff forecasts might hint at the timing of the first rate cut which the market is currently pricing in for June.