EUR GBP Lower Ahead of Sunak Autumn Budget

The EUR GBP exchange rate was -0.25% lower on Tuesday as the pair hits new yearly lows. The pound sterling will look to today’s Autumn budget from Rishi Sunak to gauge the path ahead for the currency. Next week will have the latest BoE interest rate meeting and traders are adding to rate hike bets. Tomorrow will see the ECB rate meeting, but they are behind the curve on inflation and growth.

The EUR v GBP was trading at 0.8408 with the next target being the 2020 lows near 0.8300.

German consumer confidence leads the ECB rate meeting

German consumer confidence leads the day’s data and a drop to -0.5 from 0.3 is expected in the GfK’s latest reading.

The figure had recovered from lows at -15.5 in February and 0.3 was the peak, but the consumer sentiment reading is expected to hit a four- month low as inflation starts to hit the public.

The European Central Bank rate meeting is on Thursday and the bank are unlikely to change their rate hike plans but traders will want to gauge the hawkish stance of some members in light of recent inflation, particularly Germany’s 4.4% reading.

The European economy has been showing signs of stalling in recent data and last week saw PMI figures dropping sharply. Shortages are contributing to slowing growth momentum, while price pressures mount. Eurozone PMI dropped from 56.2 to 54.3 in October, the lowest reading in six months.

Germany has also seen a lower revision for GDP growth from the Bundesbank.

The European Central Bank will not be in a hurry to follow the Bank of England on rate hikes but may discuss some slight tapering of stimulus. Eurozone inflation is at the bank’s 2% target but the figures for single economies such as Germany and France will be a headache for the ECB.

Plan B into March 2022 would cost up to £18 billion

A leaked document has said that the government was warned of an £18 billion hit to the economy if the plan B measures are implemented into March 2022.

However, virus cases in England appear to be flatlining already, after modelling by the Government’s SAGE advisers said the third wave will shrink from next month even without Plan B.

For export economies like Germany, the analysts said a “flood of new container capacity” will ease price pressures but not before 2023.

Modelling by the London School of Hygiene and Tropical Medicine for SAGE saw cases dropping from next month without any additional restrictions, to as low as 5,000 per day in winter.

Scientists have said that a combination of booster shots, natural immunity and a reduction in classroom mixing during the October half-term break would lower cases.

The pound sterling is gaining traction from the expected rate rise by the Bank of England as early as next week. The ECB could help the euro with a more hawkish tone at tomorrow’s meeting.

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