Budget drives sterling higher
- Posted by Shyam Gokani in Bank of England, Brexit, Currency, Dollar, Economy, EUR, GBP, Prime Minister, Sterling, UK
- November 24, 2016
- No Comments
Sterling surged to a 10-week high against the euro and resisted the dramatic falls against the dollar suffered by other major currencies after a UK budget read as doing more than had been expected to bolster growth in years to come.
At the heart of the sterling rally was a rocketing of long-dated gilt yields after Chancellor of the Exchequer Philip Hammond ramped up his forecasts for government borrowing to the tune of an extra 122 billion pounds over the next five years.
Down by almost a fifth against the dollar over the past year, sterling has proven more resilient since the start of October, helped by signs the economy is doing better than many economists had feared after June’s vote to leave the EU.
The pound jumped above $1.25 on Monday after Prime Minister Theresa May pledged to address business concerns that Britain could fall off a “cliff edge” when it exits the European Union, hinting at some form of transitional agreement.
Sterling has struggled to push on since, and analysts are still divided over the broader outlook for the currency heading into the formal launch of Brexit talks next year.
Strategists at one of the market’s most consistent dollar bulls, Deutsche Bank, forecast the pound to fall to $1.10 and 90 pence per euro next year.
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