Could the Spring Budget force a market reaction from the Pound?

Of the major currency pairs the Pound has historically been one of the more volatile currencies. Historical events such as Black Wednesday when the Pound collapsed in 1992, and the substantial drop off the day after the Brexit vote when markets were caught off guard spring to mind when considering GBP volatility.

This tendency for GBP volatility has waned recently with the Pound recently remaining very flat, especially against the Euro.

Even the confirmation last month that the UK economy is officially in a recession after a slow economic output in the 2^nd half of 2023 did little to the Pound’s value.

Since mid-January, EUR/GBP has remained within just a 100-pip range and the implied volatility is close to its lowest in 30-years according to Commonwealth Bank.

Market participants hoping for GBP volatility will look to this weeks Spring Budget which takes place on Wednesday. It will be his final Budget before the next general election and as a member of the Conservative Party he may try and pulls out all the stops to try and garner some support for the Party.

It’s no secret that the Conservative Party has been losing favour within the political polls, and national insurances tax cut is expected to be on the cards.

We know that the Budget carries the potential for substantial market movements after the crash in GBP’s value in the wake of Kwasi Kwarteng’s Budget which cost Liz Truss, the Prime Minister at the time her job.

Aside from the focus on Wednesday’s Spring Budget other events to look out for this week are the European Central Banks (ECB) meeting on Thursday and Friday’s US Non-Farm Payroll figures.

No changes are expected from the ECB but any major updates to the current interest rate forecasts could impact EUR exchange rates.

The US economy has also shown signs of a slight slowdown recently so I think this Friday’s reading will be monitored closely.

If you would like to discuss an upcoming currency transfer involving the Pound, feel free to contact me (Joe) directly on joseph.wright@lumonpay.com with an overview of your plans. We offer competitive exchange rates and also a number of different contract types which can help you with your plans.