- Pound (GBP) is falling ahead of the Budget
- Tax hikes and spending cuts are expected
- Euro (EUR) is rising ahead of eurozone GDP & German CPI data
- The ECB is expected to cut rates again
The Pound Euro (GBP/EUR) exchange rate is falling after losses yesterday. The pair rose 0.28% in the previous session, settling on Tuesday at €1.2030 and trading in a range between €1.1984 and €1.2050. At 11:00 UTC, GBP/EUR trades -0.48% at €1.1973.
The pound is falling ahead of the UK budget, which Chancellor Rachel Reeves will unveil at 12:30 GMT. this will be the first Labour budget in 14 years.
Reeves is expected to unveil tax hikes, spending cuts, and changes to fiscal rules to allow for further borrowing.
Prime Minister Kier Starmer has warned that the budget will be painful for some as the Chancellor looks to plug a £22 billion black hole in public finances.
Tax hikes are often deflationary and could aid the Bank of England to continue cutting interest rates.
Meanwhile, traders will also be watching the level of additional borrowing that Reeves is planning. Anything above a £10 to £20 billion increase per year could potentially unsettle the market, upsetting the gilt market and pulling the pound lower.
The euro is rising as investors look ahead to eurozone GDP and German inflation data. The eurozone economy is expected to grow 0.2% quarter on quarter in Q3, in line with growth in Q2.
Meanwhile, German inflation is expected to rise to 1.8% year on year in September, up from 1.6%. However, this remains below the European Central Bank’s 2% target level.
Still, any gains in the euro could be limited by expectations that the ECB will continue cutting rates.
The central bank is widely expected to cut rates again in December, although the market is undecided whether it will opt for a 25- or 50-basis-point cut. Weak data could fuel expectations for an outsized cut.