Despite the Cyprus uncertainty causing the Euro to broadly soften, the Pound lost ground against the common currency this morning prior to the presentation of the annual budget by Chancellor of the Exchequer George Osborne. The British currency was also adversely affected by disappointing employment data.
The Pound Sterling Exchange Rate was in the region of 1.1718 against the Euro as of 10:17 am
After posting gains against several of its main rivals over the last few days the Pound dropped this morning as home-grown developments took precedence over global issues.
Sterling declined from a five-week high against the Euro and fell for a third day against the safe-haven US Dollar as investors speculated on what this year’s UK budget will involve.
Although the much ridiculed pasty tax is unlikely to reappear, other points of contention are all but guaranteed.
As senior currency strategist Paul Robson comments: ‘There’s a lot of event risk for Sterling this morning. […] The markets are preparing for something more significant. Therefore Sterling may actually give back any losses it sees running up to the budget.’
Meanwhile, a report compiled by the Office for National Statistics revealed that UK jobless claims fell by less than expected in February. Although the UK unemployment rate held at 7.8 per cent, unemployment as measured by International Labour Organisation methods increased by 7,000 – the first increase for over a year.
Prior to the release of the report economist Howard Archer stated: ‘We suspect that unemployment will rise modestly later on in 2013. It looks touch and go whether the economy will manage to avoid further contraction in the first quarter of 2013 and we doubt that growth over the year as a whole will be strong enough to prevent unemployment moving up.’
Despite this disappointing result the Pound erased an earlier loss against the US Dollar after the minutes of the latest BoE policy meeting showed that the vote for expanding stimulus was defeated 6-3. For a second month Governor Mervyn King voted in favour of increasing stimulus.
With both hopeful and suspicious eyes now turning to George Osborne, additional Sterling movement can be expected this afternoon.
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