- Pound (GBP) is falling for a second day
- Worries of higher taxes hurting growth pull GBP lower
- Euro (EUR) rises amid hope of an easing political situation in France
- Macron meets with leaders ahead of PM announcement deadline
The Pound-Euro (GBP/EUR) exchange rate is falling for a second straight day. The pair fell 0.23% in the previous session, settling on Thursday at €1.1505. It traded between €1.1494 and €1.1536. At 11:00 UTC, GBP/EUR trades -0.21% at €1.1479. The pair is set to finish the week at approximately the same level that it started.
The pound is falling against the euro and the US dollar amid rising concerns over the outlook for the UK economy ahead of the Chancellor’s budget next month.
A think tank today urged the Chancellor Rachel Reeves to ignore party pledges and raise income tax to get the country on a more stable fiscal path.
The Labour government had promised not to increase the three main taxes in its party manifesto. However, the Chancellor has a significant funding gap to fill, potentially to the tune of £20 to £30 million.
These tax increases would come at a time when the economy is stagnating, and inflation is sticky at almost double the BoE’s 2% target.
The UK economic calendar has been relatively quiet this week. BoE speakers have sounded cautious about cutting rates further while inflation remains elevated.
The euro has recovered over the final two days of the week, recovering from losses at the start of the week caused by the political situation in France, which saw Prime Minister Lecornu resign earlier in the week.
In the latest developments, President Macron is to meet with France’s main political parties ahead of a deadline to appoint a sixth PM in under two years.
Macron is looking to appoint a leader who can unite the centre-right and center-left to pass a budget through a fragmented parliament, which is needed to reduce the country’s ballooning debt pile.
Signs of progress have helped the EUR recover against the pound, although the EUR trades lower against the USD.
