Budget Boosts Investor Confidence

The Pound experienced solid gains as the new Government’s emergency budget yesterday hit the right note with investors and stoked confidence in Sterling and the UK recovery.

Pound Sterling – UK Markets

The emergency budget gave the Pound solid gains yesterday afternoon indicating that the budget was received by investors as a credible way of bringing down the UK deficit to sustainable levels, as opposed to hampering recovery in any way. Fitch ratings agency suggested that the budget will ensure Britain will keep its AAA credit rating which is a key factor that will appeal to investors in Sterling and UK bonds. The Pound reached a one week high against the Euro also made solid gains on the U.S. Dollar. Sterling is still faring well so far today with the GBP/EURO rate being 1.2128 at 10.15 am this morning. Key budget decisions included a VAT rise to 20 percent, a two year pay freeze for public sector workers earning above £21,000, a range of welfare savings and a rise in capital gains tax to 28 percent for high rate income tax payers. Today sees the release of Bank of England minutes. BBA Mortgage Approvals figures for May have already been released this morning showing a positive rise to 36, 700 from 35, 900 in April.

US Dollar – US Markets

The Dollar has weakened against other major currencies and fallen to a four week low against the Yen on the back of poor housing figures and increased uncertainty about the U.S. recovery. The Federal Reserve is due to speak today following a two day meeting and is expected to express an amount of concern over the recovery. Policy makers are expected to keep interest rates at record lows. This comes alongside poor home sales figures likely to indicate that sales of new homes fell at the greatest pace in sixteen years.

Euro – European Markets

The Euro has weakened as poor manufacturing data has been released today indicating a fall in production in this sector. The Euro has fallen to a near one-week low against the Yen and is losing out against the Pound.

Other Currencies – Highlights

The Japanese Yen is gaining strength as the haven currency of choice as both the Euro and the Dollar have been hit with poor data. The Canadian Dollar has fallen from nearly its strongest level in five weeks as equities and oil have slumped. As the U.S. is Canada’s largest trading partner, the U.S. housing sales figures are also negatively affecting the Canadian Dollar.