October 27, 2021

Pound Depreciates Ahead of UK Budget!

 Going into the European session, all eyes are focused on the UK’s annual budget to be announced by Finance Minister Rishi Sunak today.

An allocation of £ 7 billion to the UK’s National Health Service (NHS) and an increase in the minimum wage to £ 10 have been discussed as promising deals from Rishi Sunak before.

Still, what is in question now is how they will curb the increase in the budget deficit and the current surge in inflation.

With a more hawkish fiscal stance than its counterpart, Sunak is making investors and policymakers unhappy as high inflation amid labor market shortages and supply chain disruptions is expected to hurt the economy.

Contrary to these factors, the pound sterling failed to capitalize on the opportunity to sustain the strengthening from expectations of an interest rate hike by the Bank of England (BOE).

At the time of writing, the pound sterling is trading lower around 1.3730 against the greenback dollar which continues to show strengthening in today’s trading session.

Meanwhile, BOE policymaker Silvana Tenreyro said she needed more time to assess how the termination of employment subsidies by the government affected the labor market, indicating that she did not see an urgent need to raise rates.