by Jon Beddell
Foreign Currency Market Update – GBP / EUR Update
The long awaited emergency budget has given sterling a noticeable boost as markets took comfort from the firm but measured response to the worst sovereign debt threat that has faced sterling for many years. Around 23% of the reduction on the deficit will be achieved through extra tax, most notable a VAT increase to 20% and an increase in capital gains tax from 18% to 28% for higher rate tax payers. That leaves 77% to be saved from public spending cuts which include a freeze on public sector pay and other cost cutting measures that will see up to 25% spending cuts across many departments. The market is now waiting for the reaction of ratings agencies, who are expected to affirm if not applaud the chancellor’s plans.
Sterling is accurately reflecting what everyone is feeling about this budget. It was probably necessary and could have been worse, and the general feeling is one of relief. For that reason the pound is now touching 18 month highs and looks to have positive momentum behind it. We remain optimistic of further gains in the short term. Buyers of the Euro should consider placing limit orders to capture any further upside movement. It would take a break below 1.1900 (Monday’s low) to cause concern.
Related posts:
- Foreign Exchange Daily Insight – Sterling remains under pressure in the lead up to the emergency budget
- Foreign Exchange Daily Insight – The pound gains from the emergency budget
- Foreign Exchange Daily Insight – The Pound continues to decline ahead of next week’s emergency budget
- Sterling slightly better, but for how long?
- Foreign Exchange Market News – The Pound declines against the majors, as Britain posts its first budget deficit for January
