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Jeremy Hunt has a tightrope to walk at next week's budget.
The pound traded blows with the euro and the US dollar yesterday but ended what was a skittish session almost unchanged against both. After surging in the morning, EUR/USD also fall back to around parity in the afternoon’s trading.
We’re now just one week out from the UK’s spring budget. Chancellor Jeremy Hunt is busy packing his party bags, but what treats will he lay inside them? Cuts to income tax? An even more ambitious scheme? Whatever he decides to include, he will have to tread carefully as several prominent market players warned that unfunded measures could send the pound spiralling.
The government has only a small amount of wiggle room due to high interest rates. As a result, it will be unable to prevent the tax burden from growing to its highest in modern history. That’s according to a study by the IFS think-tank, which projected tax to reach nearly 38% of national income by 2028-2029.
The big piece of fundamental data came from the US yesterday. The sale of durable goods fell by 6.1% in January, a steeper drop than forecasts of a 4.5% decrease and December’s 0.3% decrease. That sent the US dollar down slightly, although tomorrow’s GDP and PCE (Personal Consumption Expenditure) figures are likely to have a bigger impact on currency markets.
US home prices stabilised in December, with the high cost of mortgages tempering demand in metropolitan areas.
Initial jobless claims in France were on the rise in January, which means the total unemployment rate increased to almost 2.83mn. There wasn’t too much else in the way of data to keep markets occupied, but the relentless stream of geopolitical discussion certainly made its mark.
Hamas and Israel both pushed back on Joe Biden’s claim that a 40 day ceasefire might be announced this week. The US president made the remarks last night, but the two sides both agreed that differences remained to be solved before any agreement could be made.
There was also discord among EU member ranks regarding the war in Ukraine. French President Emmanuel Macron said that he could not rule out putting NATO boots on the ground in Ukraine, with Germany leading a chorus of Central European disagreement.
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GBP: BoE repeats same refrain
In a speech yesterday, the Bank of England’s Dave Ramsden said policymakers needed “more evidence” of inflation falling before they could cut rates. The Bank have been recycling a similar soundbite for weeks, but it is an important one given the excitable tendencies of financial markets.
GBP/USD: the past year
EUR: How bad is consumer sentiment?
Just how bad is morale among European consumers? We’ll get the answer to that question today, as well as some broader opinions on attitudes to the economy at large.
GBP/EUR: the past year
USD: Durable goods take a hit
The US reported a sharp drop in durable goods sales over January. The figure was actually worse than it looked, falling by 7.3% month-on-month when you take out orders from the US defence industry.
USD/EUR: the past year
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