UK 2024 Autumn Budget and Strong Eurozone GDP Spark Pound to Euro Exchange Rate Losses

October 31, 2024 - Written by John Cameron

STORY LINK UK 2024 Autumn Budget and Strong Eurozone GDP Spark Pound to Euro Exchange Rate Losses

The Pound Euro (GBP/EUR) exchange rate dropped on Wednesday, with strong Eurozone data and the UK budget impacting the pairing.

At the time of writing, GBP/EUR traded at €1.1978, down 0.4% on the day.

The British Pound (GBP) dropped on Wednesday following Chancellor Rachel Reeves's presentation of the highly anticipated Autumn Budget.

Pre-budget optimism had bolstered Sterling's strength leading up to the announcement. However, the Pound experienced a 'buy the rumour, sell the news' reaction as many investors looked to capitalise on its recent upward trend.

Moreover, the budget's inclusion of £40bn in tax hikes appeared to put pressure on Sterling. Specifically, a widely anticipated increase in employers' national insurance contributions sparked concerns that struggling businesses might delay investment and hiring.

Nonetheless, the losses were partially mitigated by increased borrowing, which could potentially drive inflation.

The Euro (EUR) strengthened on Wednesday morning following the release of the Eurozone's latest GDP figures, which exceeded expectations.

GDP growth in the bloc accelerated to 0.4% in the third quarter, up from 0.2% in the second quarter and surpassing forecasts of 0.2%.

The figures were bolstered by an unexpected expansion in German GDP, as the Eurozone's largest economy surprised markets by avoiding a recession.

This led to a surge in the Euro on Wednesday morning, with markets reducing their bets on interest rate cuts from the European Central Bank (ECB).

Looking ahead, the Eurozone’s preliminary consumer price index will be the focus for EUR investors on Thursday.

City economists anticipate that Eurozone inflation accelerated in October, rising from 1.7% to 1.9%. An increase in inflation, coupled with Wednesday’s stronger GDP figures, could drive the Euro higher.

With indications that Eurozone inflation remains persistent and the bloc’s economy performing better than expected, ECB policymakers may choose to wait for more data before enacting further interest rate cuts.

Meanwhile, GBP may continue to be influenced by the UK budget on Thursday as investors assess the Chancellor’s plans.

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TAGS: Pound Euro Forecasts Pound Sterling Forecasts