Spring budget could trigger pound shifts today

The pound dropped to new multi week lows ahead of the spring budget and could extend those losses today if tax hikes and spending cuts are revealed.

The pound dropped to new multi week lows ahead of the spring budget and could extend those losses today if tax hikes and spending cuts are revealed.

What movement have we seen in the currency market?

While the Australian dollar gained on a cautiously optimistic interest rate announcement from the Reserve Bank of Australia (RBA) and the US dollar remained supported by Fed rate hike expectations, the poor pound experienced another day of declines.

Sterling slid by -0.3% to hit seven-week lows against the euro and US dollar on Tuesday – with GBP/USD falling below 1.22.

What happened?

Well, for starters the UK published another batch of disappointing economic data.

Concerns that rising inflation and stagnant wage growth are hampering consumer spending were compounded as the British Retail Consortiumís (BRC) annual like-for-like sales figure for February came in at -0.4%, revealing a sharper drop than forecast.

Economist Samuel Tombs said of the result; ‘The BRC’s survey provides more evidence that the surge in retail sales in the second half of last year reflected consumers bringing forward purchases from 2017, because they anticipated price rises. The weakness was concentrated again in non-food sales, which fell by 0.2% on a total basis in the three months to February, the lowest growth since November 2011.’

Halifax housing data also showed that house price growth slowed to a three-year low.

Adding to the pound’s woes was speculation surrounding today’s UK spring budget.

What should you be looking out for?

Chancellor of the Exchequer Phillip Hammond is expected to discuss grammar school funding, social care, youth employment, fuel prices, stamp duty and pensions.

If the markets don’t like what Hammond has to say, the pound’s bad week could get even worse. However, if the Chancellor outlines some spending increases sterling may be able to pull itself away from this weekís lows.

Beyond the budget, the next UK news to focus on is the house price balance number from RICS. As it stands, a decline from 25% to 23% is anticipated.

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