- Pound (GBP) is rising for the second day
- The OBR lowered UK growth forecasts in the Spring Statement
- Euro (EUR) is falling sharply as energy prices rise further
- Eurozone inflation rose to 1.9% YoY
The Pound-Euro (GBP/EUR) exchange rate is rising on Tuesday for a second straight day. The pair rose 0.46% in the previous session, settling on Monday at €1.1468. It traded between €1.1378 and €1.1471. At 14:30 UTC on Friday, GBP/EUR trades 0.25% higher at €1.1496.
The pound is rising against the euro but falling further against the US dollar amid the intensifying conflict in the Middle East, which is driving oil prices higher, reviving inflation worries, and encouraging traders to rein in rate cut expectations.
Investors are also weighing up the UK’s economic outlook and domestic political uncertainty.
Chancellor Rachel Reeves’ spring budget was a non-event, in which she insisted that her economic plan was working. The Office for Budget Responsibility’s latest forecasts for growth and public finances painted a slightly different picture.
The OBR downwardly revised UK growth for this year to 1.1%, down from 1.4%. The OBR also expects unemployment to peak at 5.3% this year, then gradually fall back to 4.1% by the end of the decade.
The OBR also said it expects inflation to reach 2% target later this year. However, it’s worth noting that these forecasts do not account for any potential impact from the jump in energy prices triggered by the Middle East complex.
The EUR is falling sharply across the board and has been one of the hardest hit of the G10 currencies, given Europe’s reliance on imported energy
President Trump also said that he would cut off all trade with Spain after the country denied access to its military bases for his bombing campaigns against Iran. Although Trump didn’t lay out how he would achieve this, given that the US has a trading relationship with the broader EU.
On the data front, eurozone inflation unexpectedly rose 1.9% year on year, up from 1.7%. This is still below the ECB’s 2% target.
However, should oil prices remain persistently high and food prices start to increase, inflation could soon be revived in a meaningful way.
