The pound to euro exchange rate faced pressure yesterday as the trading week got well underway. GBP slumped back to a near four-month low against the euro while a “steady grind lower” took place throughout the day ahead of today’s budget. This was followed by a further “knee-jerk” drop following the interest rate cut this morning. However, sterling has shown slight improvement since the new budget was announced this afternoon.
Chancellor Rishi Sunak delivered the budget after Prime Minister’s questions this afternoon.
The Budget, or Financial Statement, is a statement made to the House of Commons by the Chancellor on the nation’s finances and the Government’s proposals for changes to taxation.
Sunak committed to the biggest increase in spending on capital – roads, rail, research – in generations.
Michael Brown, currency expert at international payments and foreign exchange firm Caxton FX, spoke to Express.co.uk regarding the latest exchange rate figures.
“The budget has seen Chancellor Rishi Sunak aim a fiscal bazooka at the UK economy, announcing the largest real increase in net public investment since 1955, with a host of targeted policies aimed at helping the UK economy to weather the storm of the coronavirus,” said Brown.
“While the initial market impact has been muted, the significant degree of fiscal stimulus – combined with the earlier monetary policy response – should aid the eventual economic recovery once the virus has blown over.”
Jake Trask, FX Research Director at OFX, added: “After years of austerity it appears the government is looking to finally loosen its purse strings in an effort to stave off a coronavirus-driven recession.
“With UK/EU trade negotiations already weighing on business confidence the threat of a Covid-19 pandemic has led the Chancellor, Rishi Sunak, to unveil a massive £30 billion emergency package to help the economy combat a potential downturn in economic output, as well as a five-year £175 billion infrastructure spending plan.
“The government’s move to spend makes sense given the cost of borrowing is close to an all-time low and most expect any economic shock from coronavirus to be relatively short-lived.
“However, if the damage from coronavirus turns out to be worse than feared, the UK could be facing an economic downturn akin to the financial crisis of 2008. If this nightmare scenario comes to fruition, then the government may be forced to rapidly unwind these spending plans especially if the UK looks likely to be crashing out of the European Union without a trade deal at the end of the year.”
Also today, policymakers reduced interest rates to 0.25 percent from 0.75 percent, taking borrowing costs back down to the lowest level in history.
The move is a desperate attempt to add stability to the economy amid coronavirus fears.
Coronavirus continues to impact the economy as flights are axed and Italy goes into lockdown. There are currently 119,132 cases confirmed worldwide and 4,284. In the UK, there have been 382 cases and six deaths.
The pound is currently trading at 1.1416 against the euro, according to Bloomberg at the time of writing.
Michael Brown, currency expert at international payments and foreign exchange firm Caxton FX, spoke to Express.co.uk regarding the latest exchange rate figures this morning.
“Sterling was pressured on Tuesday, falling back to near four-month lows against the euro,” said Brown.
“[This came] as some pre-budget jitters crept into the pound’s trade, resulting in a steady grind lower throughout the day.
Commenting on the interest rate cut, Brown said: “After the Fed’s emergency rate cut last week, and ahead of the Budget this lunchtime, the Bank of England have surprised markets this morning by announcing a 50bps rate cut, in an attempt to cushion the economic blow of the coronavirus.
“While blanket rate cuts are unlikely to be the only solution to the economic fallout of the virus, the announcement of a term lending scheme for SMEs shows the Bank are also putting in place targeted measures to help those in the economy who will need it most.
“Sterling took a knee-jerk leg lower after the decision, though has pared some losses, largely due to around 45bps of easing having already been priced in for the scheduled March meeting.”
Brown added: “Markets will also be paying close attention to further communications from the BoE to assess the likelihood of further policy easing. “
“Support to small businesses is also expected on anticipation of a spike in staff absences. Sterling could gain though if Mr Sunak also decides to relax a limit on daily spending enforced by his predecessor Sajid Javid.
“Furthermore, hints of lower rates of tax could also help the pound climb. A fiscal boost should help relieve some pressure off the Bank of England to cut interest rates to help safeguard the UK economy from coronavirus-induced economic implications.”
So what does this all mean for Britons heading off on holidays and looking to buy travel money?
The Post Office is currently offering a rate of €1.0951 for over £400 and €1.1190 for over £1,000 – down from this morning.
Published at Wed, 11 Mar 2020 13:49:00 +0000