Gentium FX | Daily Report - 15th March 2023 - UK Budget In Focus
GBP: At 12.30 PM today, UK Chancellor Jeremy Hunt is scheduled to deliver what has been described as a 'budget for growth'. The budget is expected to focus on measures aimed at improving the cost of living crisis such as caps on energy bills, as well as addressing the decline in the UK labour force through childcare support and pension reform. Additionally, there may be incentives on investment such as new forms of tax breaks. Although the UK's short-term growth forecasts could be revised upwards, medium-term growth prospects could be lowered. It is also possible that Chancellor Hunt is reserving more explicit fiscal stimulus for either the Autumn Statement or next year's Budget in preparation for the 2024 elections.
EUR:?On the continent, policymakers are still inclined towards a 50 bp rate hike due to fears that inflation will continue to be too high in the next few years. It is also unlikely that they will abandon this rhetoric as doing so could harm their credibility. Furthermore, it is anticipated that the new inflation projections will be lower than those in December, yet still indicate a level of price growth slightly above the 2% target in 2025. All eyes will be on how much the European Central Bank decide to hike tomorrow.
USD: On Tuesday, the US Dollar was able to overcome selling pressure as inflation data from the US strengthened expectations of a 25 basis points Fed rate hike in March, leading to a rise in US Treasury bond yields. As attention now turns to the February Retail Sales and Producer Price Index data from the US, markets appear to be calm on Wednesday. The CME Group FedWatch Tool indicates that the market is presently pricing in an 82% probability of a 25 bps rate hike at the upcoming meeting. The fallout from the US banking crisis continues with many fearing that depositors will move funds from smaller less scrutinised banks to highly regulated better capitalised banks.
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