- The tax concerns of the United Kingdom trigger a massive sale in the Gilts market, sending the EUR/GBP up.
- The sterling pound faces pressure after abandoning the planned well -being cuts in the United Kingdom.
- The EUR/GBP shoots after the appearance of the United Kingdom finance minister, Rachel Reeves, under scrutiny in the United Kingdom Commons.
The euro (EUR) is on the rise in the sterling pound (GBP) on Wednesday, since investors responded to the growing concerns about the fiscal trajectory and political stability of the United Kingdom.
At the time of writing, the EUR/GBP is quoted above 0.8600, with intradic earnings close to 0.70%.
Reeves faces pressure as concerns about the United Kingdom’s fiscal policy increase
The market reaction followed a dramatic change of course by the United Kingdom government, which abandoned the plans to cut 5,000 million pounds of well -being related to disability and health.
The decision was made after the internal dissent in the Labor Party and the sustained pressure of the defenders of the rights of persons with disabilities.
During a tense session in the Commons Chamber on Wednesday, Foreign Minister Rachel Reeves seemed visibly tense, generating new doubts about cohesion in the treasure’s heart. The change of course effectively eliminated much of the fiscal margin of the United Kingdom, opening a deficit of several billions of pounds that, according to analysts, could force difficult decisions about taxes or expenses later this year.
The fiscal setback caused a rapid mass sale of bonds of the United Kingdom government. The yields of the 10 -year Gilts were fired at 4.68%, the highest level since October 2022. The markets are now reassessing the United Kingdom’s capacity to maintain fiscal discipline.
Speaking in the European Central Bank forum (ECB) on Tuesday, the governor of the Bank of England (BOE), Andrew Bailey, said a more cautious position about quantitative hardening. He suggested that the Central Bank could slow down the pace of asset sales. While their comments offered some relief to investors in Gilts, they were not enough to compensate for the broader political and fiscal concern that affects the United Kingdom markets.
The operators are increasingly considering the increase in political risk and fiscal uncertainty in the United Kingdom, with some questioning now if the BOE will be forced to adjust its course in response to market volatility.
On the contrary, the euro benefits from the relative policy stability within the euro zone, offering greater rising potential for the EUR/GBP in the short term.
LIBRA ESTERLINA – FREQUENTLY QUESTIONS
The sterling pound (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most commercialized currency exchange unit (FX) in the world, representing 12% of all transactions, with an average of $ 630 billion a day, according to data from 2022. Its key commercial peers are GBP/USD, which represents 11% of FX, GBP/JPY (3%) and EUR/GBP (2%). The sterling pound is issued by the Bank of England (BOE).
The most important factor that influences the value of sterling pound is the monetary policy decided by the Bank of England. The Bank of England bases its decisions itself has achieved its main objective of “price stability”: a constant inflation rate of around 2%. Its main tool to achieve this is the adjustment of interest rates. When inflation is too high, the Bank of England will try to control it by raising interest rates, which makes access to credit for people and companies more expensive. This is generally positive for sterling pound, since higher interest rates make the United Kingdom a more attractive place for global investors to invest their money. When inflation falls too much it is a sign that economic growth is slowing down. In this scenario, the Bank of England will consider lowering interest rates to reduce credit, so that companies will borrow more to invest in projects that generate growth.
Published data measure the health of the economy and can affect the value of sterling pound. Indicators such as GDP, manufacturing and services PMI and employment can influence the direction of the sterling pound.
Another important fact that is published and affects the pound sterling is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will benefit exclusively from the additional demand created by foreign buyers seeking to buy those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
