UK Budget – no surprises

There were no major surprises in the UK budget yesterday. Chancellor of the exchequer, Jeremy Hunt, delivered on a number of items that had already been leaked in advance and, when questioned, didn’t rule out the possibility of a general election in May. So, in spite of the National Insurance reduction and a number of tax loopholes being closed, sterling slips a little in the latter part of the day; investors and traders are always nervous ahead of elections, particularly when there may be a change of government or, potentially a hung parliament. There was some respect for the pound this morning though when the Halifax house price index showed the 5th consecutive rise. The annualised growth rate to the end of February is shown at 1.7%; not earth-shattering but perhaps a sign of some confidence in the economy. We don’t have any further tier-one data for the UK today but we do have interest rate decisions from the ECB and press conference to follow that. Right now, the GBP/USD rate is steady at $1.2740 and the GBP/EUR rate is still unable to break above that pesky €1.1700 level.

ECB most likely on hold but for how long?

There is almost no chance the European Central Bank will raise or lower their base rate when they meet at lunchtime today. The state of European economic data would suggest interest rate cuts are coming very soon. However, we will need to wait for the ECB press conference at 1:45 UK time to hear what the president of the ECB has to say about the timing of any potential rate cuts. The euro is fairly flat ahead of that. GBP/EUR is just below €1.1700, which is proving an impenetrable barrier for the pound. The EUR/USD rate has moved up to test $1.09 but is failing to make any progress above that level. The ECB isn’t the only central bank that will be in action today. We will also hear from the chairman of the US Federal Reserve as he delivers a testimony to the Joint Economic Committee.

Bank of Canada on hold

Despite slowing growth around the world, even in Canada’s major export market, the USA, the Bank of Canada kept their base rate on hold when they met yesterday yes and committed themselves to continued quantitative tightening. Some commentators had been talking about the potential for an interest rate cut from the BOC but that was not forthcoming. So the Canadian dollar, which had weakened throughout the week, regained most of its lost ground yesterday and we find the GBP/CAD rate down at CAD 1.7205 this morning. There is a smattering of Canadian data today but traders in the loonie will most likely wait until tomorrow’s employment data. There is every chance the unemployment rate will have stepped up to 5.8%, adding further pressure on the BOC to reduce the cost of borrowing.