- Pound (GBP) is unchanged after yesterday’s gains
- Chancellor doubled her fiscal headroom, pleasing the bond market
- Euro (EUR) is unchanged after German data & ECB minutes
- ECB minutes showed the rate-cutting cycle could be over
The Pound-Euro (GBP/EUR) exchange rate is unchanged on Thursday after gains yesterday. The pair rose 0.36% in the previous session, settling on Wednesday at €1.1420. It traded between €1.1339 and €1.1425. At 13:00 UTC, GBP/EUR trades 0.02% at €1.1423.
The pound is unchanged on Thursday but holds on to gains from the previous session as investors continued to digest the chancellor’s autumn budget.
The chancellor Rachel Reeves managed to double her fiscal headroom to £22 billion, well ahead of the £15 billion forecast in her tax-heavy budget, keeping the bond market onside for now.
Gilts rose after the release of the Budget measures (which the OBR released by mistake early, before the Budget!), pulling yields lower amid signs of increased confidence in the Chancellor’s fiscal plan. Falling yields boosted the pound. Investors are looking through the bad news that growth forecasts for 2026 were revised lower to 1.4% from 1.9% and inflation forecasts were increased. Meanwhile, the tax burden increased to a record 38% of GDP.
Given that the Chancellor has increased spending in the near term and pushed out the increase in tax receipts until later in the decade, there is still an element of risk. Weaker-than-expected growth could see the Chancellor need to raise taxes again.
The euro is unchanged against the pound and the USD amid a busy economic calendar. German GFK consumer confidence showed that morale improved heading into December. The consumer confidence index rose to -23.2, up from -24.1, despite ongoing economic uncertainty.
Data this week showed German GDP stalled at 0% QoQ in Q3, and IFO business sentiment deteriorated.
The minutes of the ECB meeting in October showed that the central bank may have ended its rate-cutting cycle.
Some policymakers said in the meeting that the rate-cutting cycle had come to an end. However, some argued that it’s unclear whether the economy has enough momentum to withstand the current policy stance.
