Mixed market reaction to UK Budget

Macro Commentary

The UK budget dominated the headlines as the chancellor attempted to balance fiscal responsibility against the upcoming election. Reaction has varied considerably, but monetary policy forecasts remain relatively unchanged. The market continues to expect an initial rate cut in August, with rates dropping towards 4.50% by year-end.

In the US, central bank chair Powell reiterated the Fed is in no rush to cut rates given the robust economy, and more confidence would be needed on inflation returning to the 2% target on a sustainable basis. The market still favours an initial rate cut in June and a cumulative 0.85% of cuts this year.

The critically important US payrolls numbers are released later today and are a significant factor in monetary policy decisions, which will likely increase volatility.

The European Central Bank kept policy on hold as widely expected, although they downgraded their short-term growth and inflation forecasts. They are expected to embark on an aggressive rate cutting cycle in June, with up to 1% of cuts currently priced in.

On the exchanges, GBP/USD is trading at its year-to-date high on weaker US data and the interest rate outlook, whilst GBP/EUR remains near the top end of its well-established range.

Key data releases next week include the UK jobs market, and US inflation.

GBP/USD – 1-year chart

Week Ahead

*Bloomberg survey / Not available

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