- Pound (GBP) falls against the EUR and the USD
- The Chancellor laid the groundwork for tax hikes in the Budget
- Euro (EUR) is rising but falls versus the USD
- Sentiment drives the EUR amid a quiet calendar
The Pound-Euro (GBP/EUR) exchange rate is falling after a flat finish yesterday. The pair rose 0.02% in the previous session, settling on Monday at €1.1406. It traded between €1.1381 and €1.1414. At 15:00 UTC, GBP/EUR traded -0.37% at €1.1364.
The pound has slumped to a fresh multi-year low against the EUR and a 7-month low against the USD amid rising concerns over the outlook as Chancellor Rachel Reeves paves the way for tax hikes.
The Chancellor made a rare move to give a speech just three weeks before the Budget, laying the groundwork for tax hikes that could slow the economy further, prompting the Bank of England to cut rates sooner than previously expected.
Given the £20 billion-plus black hole Reeves faces, tax hikes are almost inevitable, hitting households or businesses. As a result, given the cooler-than-expected inflation data, the market is raising its expectations for a November BoE rate cut to 30% ahead of this week’s BoE meeting.
The euro is rising against the pound, but it’s falling against the US dollar. The euro was driven by sentiment on Tuesday amid a quiet economic calendar.
Last week, the ECB left interest rates unchanged at 2%, with the governing council broadly on the same page that substantial data surprises would be needed to create a new division among policymakers. The ECB is not expected to cut interest rates again this cycle, with inflation close to the 2% target and recent growth data showing a move, albeit slowly, in the right direction.
Attention is turning to tomorrow’s economic calendar, where German factory orders and the eurozone’s services PMI figures will be in focus.
Yesterday, manufacturing PMI data showed that activity in the sector ticked higher to 50, signalling a move out of contraction. The services PMI is expected to be 52.6 in October, and the composite PMI, a good gauge of business activity, is expected to confirm the preliminary reading of 52.2.
