- Pound (GBP) is falling after losses last week
- UK Chancellor faces a larger challenge in November as borrowing passes forecasts
- Euro (EUR) rises ahead of ECB speakers
- EZ consumer confidence data is due
The Pound-Euro (GBP/EUR) exchange rate is falling modestly, extending losses from last week. The pair fell 0.75% in the previous week, settling on Friday at €1.1468. It traded between €1.1455 and €1.1586. At 11:00 UTC, GBP/EUR trades -0.04% at €1.1465.
The pound fell sharply last week despite the Bank of England leaving interest rates unchanged at 4% in line with expectations.
Instead, the market fretted over the fiscal picture of the UK as the budget challenge for Rachel Reeves, the chancellor, grew as borrowing surged.
Data on Friday showed that government borrowing had shot past official figures that underpin the government’s tax and spending plans, meaning that Finance Minister Rachel Reeves faces an even larger black hole in her November budget.
While currently UK inflation is still above target, growth has slowed. July GDP data showed a flat reading of 0%.
UK PMI data is due to be released tomorrow and will provide more insight into how the economy is holding up. However, the concern is that activity will slow as we approach the budget, and should the chancellor hike taxes further. The economy could slow further.
Bank of England governor Andrew Bailey is due to speak later today. However, given the concerns over the fiscal outlook in the UK, even a slower-than-expected pace of Bank of England rate cuts may only offer limited support to the pound against the euro.
The euro is rising with ECB officials due to speak and ahead of eurozone consumer confidence data.
ECB chief economist Philip Lane, as well as German Bundesbank president Joachim, could offer some clarity about the ECB’s next steps with monetary policy.
Over the weekend, ECB officials Khazaks and Scicluna considered that monetary policy is well placed at the moment, with no rush to cut interest rates further.
Meanwhile, consumer confidence is expected to improve modestly to -15.4, up from -15.5.
