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John Healey's 'do no harm' Budget prioritised stability over large spending commitments (Sean Aidan Calderbank / Shutterstock).
Sterling arrives at Budget day close to a 17-month high against the euro, although its performance against the US dollar has been rather less convincing.
The chancellor may not be the only one with a few butterflies in his stomach this morning. Andy Burnham and John Healey will both be well aware that any unexpected increase in borrowing could pile pressure on the pound. With markets expecting a ‘do no harm’ Budget, the margin between being safe with the sums and risking a market meltdown is very slim indeed.
Banks and analysts alike are expecting an exercise in restraint. Yesterday, the chancellor promised ‘everyday’ fixes to cost-of-living strains, from relief on energy bills to reduced duties on supermarket staples. That led opposition parties to perhaps uncharitably label this the Budget of ‘cheaper gherkins’, but we’ll have to wait until at least 12.30 today to pass judgement.
Regardless of what happens on these shores, the next few days look very busy indeed for major currencies. The Federal Reserve and the European Central Bank will each make interest rate decisions before the end of Thursday, while a stream of important data means we could see some sizeable movements between now and the weekend.
Israel went to the polls to elect its next president yesterday in one of its most consequential votes of modern times. An exceptionally high turnout spoke to the significance of this moment, but exit polls point to there being no clear winner, an outcome that could lead to protracted coalition negotiations between the polarised blocks.
There was some fairly robust looking data out of the US to go over on Tuesday, with durable goods orders increasing by 1.8% in September. Consumer confidence also moved higher, although fewer home starts evidenced the impact of elevated inflation on the housing market.
The tone coming out of the Middle East has been more upbeat this week after diplomatic efforts that aimed to cool tensions between Saudi Arabia and Iran. The price of oil fell by close to 2%, with significant supply and negotiating hurdles left before a lasting settlement can be reached.
GBP: All eyes on Healey
Today marks a huge moment for the pound. Go too big and the chancellor risks a bond selloff, but an unambitious statement would be a tough political sell. As if to underline what’s at stake today, the UK sold its most expensive five-year government bond since 2008 on Tuesday. The bond market’s reaction to the Budget could ultimately decide where the pound is by the end of the day.GBP/USD: the past year
EUR: On the defensive
The euro continues to fend off pressure arising from the recent troubles in France. There was more news on that front yesterday, with French consumer confidence plunging to its lowest in 13 years. A fall was to be expected, but markets will be watching for an indication it can escape the present doom loop it seems to be experiencing.GBP/EUR: the past year
USD: Higher rates show up in housing
Tuesday brought another strong showing for the US dollar ahead of this evening's interest rate decision. The Fed is expected to keep rates on hold following September's increase, but anticipation of at least one more increase this year is building. Owing to its move away from signposting future policy, the accompanying commentary could prove more impactful than the decision itself.USD/GBP: the past year
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