Pound Sterling falls amid risk off atmosphere, with UK’s Spring budget under focus.
In Tuesday’s European session, the Pound Sterling (GBP) fell slightly from the critical resistance level of 1.2700. The GBPUSD pair has come under pressure due to Investors’ reduced risk Appetite and Uncertainty. Ahead of the United Kingdom’s Spring budget, which will be Unveiled by Chancellor Jeremy Hunt on Wednesday.
The UK’s limited exposure to fiscal stimulus in the spring budget would boost expectations for BoE rate decreases.
As the UK economy faces a tough inflation outlook and decreasing growth. Jeremy Hunt will have to strike a balance in terms of fiscal forecasts. “We’ve always said we would only cut taxes in a way that’s responsible. And prudent,” Hunt said on Sunday, according to BBC News.
Limited scope for tax cuts would heighten expectations of early rate cuts by the Bank of England (BoE). Which might impact on the Pound Sterling.
Meanwhile, a negative market sentiment ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress. Which is also scheduled for Wednesday, and a slew of US economic data this week have provided some support to the US Dollar.
Investors are looking forward to new PMI data from the UK and the United States.
Today’s session, investors will focus on the final S&P Global/CIPS UK Services PMI, which will be issued at 09:30 GMT. And the US S&P Global and ISM Services PMIs, which will be published at 14:45 GMT. 15:00 GMT, respectively.
Daily Market movers: Pound Sterling declines amid cautious market sentiment.
The pound sterling falls off its round-level resistance of 1.2700. Amid caution ahead of the UK’s Spring budget and a full US economic calendar.
Market players will pay close attention to Chancellor Jeremy Hunt’s Spring budget announcement. An signal of further fiscal stimulus through tax cuts, a drop in national insurance rates. And big public expenditure plans against revenue raising instruments would undermine the Bank of England’s aspirations for early rate cuts, as fiscal stimulus might fuel inflation.
The Conservative government’s plan is expected to focus on boosting growth in order to prevent the economy from entering another recession. However, a significant stimulus package is not expected.
The BoE Policymakers have suggested that the technical recession seen in the second half of 2023 was brief.
BoE Policymakers have suggested that the technical recession seen in the second half of 2023 was brief.
Retail Sales and PMIs are increasing significantly, indicating that the economy is likely to resume growth. However, a variety of liquidity measures are essential to ensure that the economy does not derail off its path of recovery.
On the contrary, the limited scope of fiscal measures may lead to the BoE cutting interest rates sooner than expected. Markets expect the BoE to begin lowering interest rates in August, when inflation is likely to revert to the 2% target before rising again.
Meanwhile, the US dollar rises after recording a new two-day bottom near 103.70, as market mood turns cautious ahead of Federal Reserve Chair Jerome Powell’s speech. On Wednesday, Congress will be presented with a slew of US economic statistics, including the ISM Services PMI, ADP Employment Change, JOLTS Job Openings, and Nonfarm Payrolls.
Powell is anticipated to caution against the risks of early rate decreases, emphasizing the need for more evidence to ensure that inflation will return to the 2% objective.
