British Pound: Budget uncertainty leaves Sterling vulnerable against Euro - Rabobank
Rabobank's Senior FX Strategist Jane Foley outlines a cautious stance on UK fiscal prospects and their impact on EUR/GBP. The Burnham government’s planned flexibility in fiscal rules and higher infrastructure spending could mean more gilt supply and tax speculation.
British Pound (Sterling) faces uncertainty as the UK budget is in question, leaving it vulnerable against the Euro (EUR), according to Rabobank Senior FX Strategist Jane Foley. The government's flexibility in fiscal rules and increased infrastructure spending may lead to more government bond supply and tax speculation. Foley anticipates market nervousness into autumn and recommends buying EUR/GBP near 0.85, with resistance around 0.8578.
The ongoing uncertainty could keep the UK market anxious into the autumn, as the 50-day simple moving average is currently acting as resistance at 0.8578. While borrowing to invest may be more appealing to the market, the additional government bond supply will still need to be absorbed, and infrastructure projects will likely take years to raise capacity.
Regardless, Burnham's plans to ease the cost of living for constituents still need to be funded. Speculation over potential tax hikes is already surfacing, potentially having a contractionary impact on growth. This may prompt changes in how public debt is defined to accommodate increased infrastructure spending.
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