- Pound (GBP) is falling mildly after losses last week
- Fiscal worries eased slightly after the Chancellor warned on spending
- Euro (EUR) rises as economic sentiment improves
- Economic sentiment rose to 95.5
The Pound-Euro (GBP/EUR) exchange rate is modestly lower on Monday, extending losses from last week. The pair fell -0.11% in the previous week, settling on Friday at €1.1455. It traded between €1.1420 and €1.1488. At 16:00 UTC, GBP/EUR trades -0.03% at €1.1455.
The pound is inching lower at the start of the week, as the market digests comments by British finance minister Rachel Reeves at the Labour conference in Liverpool.
The chancellor, Rachel Reeve, warned that market confidence would be lost immediately if she permitted spending to get out of control, sending a warning to her colleagues who had called for her to spend more.
Her comments come ahead of the budget in late November, where she is widely anticipated to hike taxes again and keep spending tight to keep her fiscal rules on track.
Quite simply, when spending gets out of control, the market loses confidence. Recent data have shown that government spending has been elevated, and government borrowing reached a five-year high in August, at $18 billion, well ahead of expectations.
Last week, the UK bond market showed signs of weakness, with recent auctions suggesting that international investors are shunning government debt, which has sent borrowing costs higher.
The yield on the 30-year count is at the highest level in 30 years, although the 10-year gilt yield fell to 4.72% ahead of his speech and a comma nudged in the market.
Today, the UK economic calendar was quiet; however, a speech by Bank of England Deputy Governor Dave Ramsden could weigh on sterling. Ramsden said the UK job market had weakened, and wage growth was normalizing, leaving him confident that interest rates could be cut further and inflation would return to target.
The euro is inching modestly higher. Data showed that eurozone economic sentiment improved slightly in September. Another
Data by the European Commission showed that the economic sentiment indicator rose to 95.5 in September. However, this remains below the long-term average.
The sentiment indicated that September reflects cautious optimism. This comes amid more clarity on the trade relationship with the US, and domestic performance, suggesting that the economy is ticking over.