No negative Budget surprises = Pound recovery.
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| Financial markets have reacted positively to the Chancellors Budget as fiscal concerns retreat.
You know the headlines i'm sure so I will stick to what everything means in terms of the Pound. As mentioned in Monday's report (and previous reports), this was the best outcome for GBP.
We were never going to see a resurgent Sterling yesterday, today or this/next week (even though a few heavyweight analysts were suggesting it). Mid-market £-€1.13-1.14 is fair value at this point in time with the many variables currently at play.
Surprisingly the Pound has had a remarkably calm November with volatility limited. Sterling did fall 0.3% across the board when the leaked OBR forecast came out shortly before the Budget started. But improved as soon as the Chancellor spoke and those levels have remained.
The most important story is financial markets have bought into Reeves and her plan of; spend now, pay later (delaying fiscal pain).
The downside risks for the Pound yesterday were very real, make no mistake about that. £-€1.11 mid-market was a real scenario we were preparing for and potentially worse in the weeks/months ahead. Other variables may still see things go this way, but at least the Budget drama is now thankfully off the table to see things slide imminently.
For now, Sterling has found stability (the best case), but does still remain at a 2.5-year low versus the Euro.
Note too that the Budget was deflationary overall, meaning UK interest rates will likely come down faster and go deeper next year, which will weigh on GBP. |
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