Pound Loses Bullish Steam Against Dollar Ahead Budget Presentation

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In anticipation of the 2018 budget from Finance Minister Jeremy Hunt, which includes “tough but essential” measures to curb inflation, the pound (GBP) depreciated against the dollar on Thursday.

Hunt, who replaced Kwasi Kwarteng as chancellor under former UK Prime Minister Liz Truss, intends to close a gap in the British budget of 55 billion pounds ($65.7 billion) by extending the two-year freeze on income tax, national insurance, inheritance tax, and pension thresholds and allowances.

The rate of inflation in the UK soared to 11.1% in the year ending October, exceeding September’s 10.1% rate and marking the biggest increase in four decades.

Hunt is anticipated by the market to unveil a total budgetary tightening of between 40 and 50 billion pounds over the next couple of years.

Pound Remains Strong on the Larger Frame

Sterling was last seen trading flat against the euro (EUR) at 87.22 pence and was down 0.3% against the dollar at 1.1869, shortly after reaching a session high of $1.1958 earlier today.

Late in September, when Truss’ “mini-budget” added billions to the government’s borrowing costs and compelled the Bank of England (BoE) to intervene to stabilize the market and save pension funds, the pound fell to a historic low versus the dollar of 1.0327.

Since then, the value of the pound has recovered almost 16%, and it is currently trading at its highest level in three months. However, a large portion of this seeming strength is the consequence of investors profiting from this year’s enormous dollar rally.

Sterling has only gained 6% or so against the euro and 9% against the yen (JPY) since late September.

 

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.