Currency Note

All eyes on Chancellor’s Budget this week

By Carl Hasty March 1st, 2021

Editorial credit: Cubankite / Shutterstock.com

After a strong week, the pound weakened on Friday due to changes in the global markets. This morning, it is well supported against the euro and the dollar, but lower than it was towards the middle of last week.

The currency markets have recently been taking their cues from the global bond market, where yields have surged in anticipation of economic recovery and predictions that central banks will have to tighten monetary policy earlier than expected.

All eyes will be on the Chancellor’s Spring Budget this week, which is due to take place on Wednesday. Rishi Sunak is expected to set out the government’s spending plans for the year ahead, including support for business’ and individuals in the wake of the pandemic.

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GBP: Budget and PMIs this week

The pound weakened at the end of last week due to changes in global market sentiment around risk aversion and bond yields. Sterling is still weaker against the euro and the dollar than it was towards the middle of last week.

This week, all eyes will be on the Chancellor’s Budget on Wednesday. Rishi Sunak will outline the government’s spending plans, including whether the UK will begin paying off the debts and how it is going to support those hardest hit by the economic effects of the pandemic.

There will be a series of PMI data leading up to the Budget on Wednesday, which should give an indication of how the UK economy performed in February.

GBP/USD chart

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EUR: PMI data for the Eurozone to be released

The euro is weaker against the dollar this morning ahead of a busy week for Eurozone data and the European Central Bank. The single currency could weaken further if the ECB follow through with their suggestions that the Bank will act aggressively to counter an unwanted rise in bond yields.

Several ECB officials will speak this week, including President Christine Lagarde later today.

PMI data for February, inflation rate and retail sales figures will also be released. Manufacturing PMI, which is due to be released this morning, is expected to show strong growth for the sector in February.

USD: Non-Farm Payrolls this week

The dollar is weaker against a basket of currencies as US treasury yields have stabilised. This means that riskier currencies are now in favour over reserve currencies, such as the US dollar.

The markets are still keeping an eye on Biden’s $1.9 trillion stimulus bill, which has now been passed by the US House of Representatives. It now moves to the Senate. Both Biden and Treasury Secretary Janet Yellen have urged Congress to approve the bill.

There will be a series of data releases for the US this week, including PMI data and Non-Farm Payrolls at the end of the week.

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