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British Pound (GBP) Outlook Brightens As UK Budget Nears

British Pound (GBP) Outlook Brightens As UK Budget Nears

Martin Essex, MSTA, Analyst

GBP price, FTSE news and analysis:

  • The UK Budget is due next Wednesday and will likely help both GBP/USD and the FTSE 100 index of leading London stocks.
  • Political analysts are forecasting an easing of UK fiscal policy through both tax cuts and extra spending.
  • That should outweigh a cut in UK interest rates expected later this month that has already been fully priced in.

GBP/USD Outlook Brightens

GBP/USD is well placed to extend this week’s rally as attention turns to the UK Budget on March 11. The Budget is an important set-piece event in the UK and the new Chancellor of the Exchequer, Rishi Sunak, will likely follow up on the Government’s election pledge to ease fiscal policy through tax cuts and higher Government spending.

This should outweigh the prospect of a cut in UK Bank Rate on March 26 to 0.5% from the current 0.75%, a reduction already fully priced in to the overnight index swaps market. As a result, the current trend higher could take GBP/USD back towards the 1.30 level after a recent low of 1.2726 in late February.

GBP/USD Price Chart, Daily Timeframe (December 5, 2019 – March 5, 2020)

Latest GBP/USD price chart.

Chart by IG (You can click on it for a larger image)

Any adverse reaction to a rate cut has already been offset by rate reductions in the US and elsewhere, and GBP/USD could also be strengthened by a potentially weaker US Dollar as concerns about the coronavirus ease, reducing flows into safe havens.

As for the FTSE 100 index of leading London-listed stocks, that should also benefit from the Budget, with extra Government spending likely to help businesses with Government contracts. Note the need for easier fiscal policy has increased as politicians worry that the coronavirus outbreak could damage global demand.

FTSE 100 Price Chart, Daily Timeframe (December 5, 2019 – March 5, 2020)

Latest FTSE 100 price chart.

Chart by IG (You can click on it for a larger image)

We look at Sterling regularly in the DailyFX Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.