01/03 – Budget week starts with a weaker pound

01/03 – Budget week starts with a weaker pound

GBP: Wednesday’s Budget overshadowing sterling

EUR: Soft touch on rates

USD: Holding strong for now


Today and tomorrow are merely days before Wednesday in the grand scheme of things, with everything UK focused revolving around Chancellor Sunak’s Budget. Certain comments released over the weekend – no changes in income tax limits, possible hikes in capital gains tax – suggest the Budget may be more austere than had previously been hoped with some suggesting that the UK government is balancing up the good news of the vaccination effort with tougher fiscal conditions.

Sterling may struggle with a narrative of increased austerity from Wednesday onwards, should that be the medicine that the Chancellor believes we should all be taking alongside our Covid-19 jabs.

We expect more leaks in the coming 48hrs but for now, the Budget does not seem to be offering sterling much assistance.


It was only a matter of time; if we’re talking about rising bond yields in the US and elsewhere in the world, the ECB is going to start getting scared of its own shadow. Comments on Friday from European Central Bank members that they may need to add support to the Eurozone economy should the rise in yields hurt the recovery, has helped risk but hurt the euro and will continue to do so as long as the ECB is seen as a soft touch.

PMIs today won’t have been affected by last week’s bond movements but could add to the narrative of weakness that has enveloped the single currency for weeks now.

US dollar

Wider markets stand at a bit of crossroads this morning with investors eager for central banks to acknowledge that the yield on bonds, and therefore wider interest rates, can and will rise in the future. It may sounds obvious to say that but as long as investors believe that the central bank will instead blame increasing bond yields on a recovering economy then those investors are well within their rights to keep selling those bonds, generating both volatility and a headache for those central bankers.

Seemingly every Fed member will speak at some point this week with the Fed Chair joining in on Thursday.

We expect the USD to remain sold in the meantime, but this week is likely to be volatile in both directions.


Overnight moves by the Reserve Bank of Australia have injected a note of positivity into markets as investors bet on similar moves from other central banks to keep their interest rates low. The Reserve Bank of Australia upped its bond buying program overnight, buying both short and longer dated debt in a bid to keep yields low.

While the efforts of the RBA are laudable, bigger guns – Fed, ECB, BoJ or BoE – will need to fire to engender a wider feeling that the central banks are not to be messed with.

Market rates

Today’s interbank rates at 08:27 against sterling. Movement vs yesterday.

Euro€1.156 ↓
US dollar$1.395 ↓
Australian dollar$1.799 ↑
South African randR21.02 ↑
Japanese yen¥148.6 ↓

Have a great day everyone.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.