- Pound (GBP) is falling and dropping across the week
- UK gilt yields rise on reports that Reeves won’t raise income tax
- Euro (EUR) rises after GDP grew 0.2% QoQ
- Spain and France see solid growth offsetting Germany’s weakness
The Pound-Euro (GBP/EUR) exchange rate is falling, paring yesterday’s gains. The pair rose 0.11% in the previous session, settling on Thursday at €1.1340. It traded between €1.1306 and €1.1346. At 13:00 UTC, GBP/EUR trades -0.27% at €1.1310. The pair fell 0.6% this week, marking the fourth straight weekly decline.
The pound is falling, and 10-year yields have spiked on reports that Rachel Reeves has no plans to raise income tax rates at this month’s budget due to improved fiscal forecasts.
The chancellor is expected to need 10s of billions of pounds to stay on track for her fiscal targets, and her recent comments were seen as paving the way for the government to break its main election pledge and hike income tax rates.
However, the latest forecast from the Office for Budget Responsibility pointed to an improved fiscal outlook, suggesting the government may not raise income tax at all.
Government bonds fell sharply on the news, with yields rising by 14 basis points at one point across the 20- and 30-year gilts. This has eased slightly. Meanwhile, the 10-year borrowing cost rose 8 basis points to 4.56% on track for their largest daily rise since September 25.
Based on an increase in income tax rather than the patchwork of smaller taxes, most can be easier to avoid.
Meanwhile, data from the eurozone shows that the economy is holding up at a modest but respectable pace in Q3, as the trade surplus surged in September, with healthy exports to the US.
The 20-nation currency bloc has proven resilient to trade troubles and uncertainty this year.
The economy grew 0.2% quarter on quarter in Q3 in line with the first estimate released in late October. Growth in France and Spain offset the slowdown in Germany, which has stagnated for the third straight year, amid weak output, poor exports, and subdued private consumption.
Eurozone GDP grew 1.4% ahead of expectations of 1.3% driven by Spain’s ongoing strong performance.