Senior FX Strategist at Rabobank A cautious approach to UK budgetary prospects and their effect on EUR/GBP is outlined by Jane Foley. More gilt supply and tax speculation may result from the Burnham government's projected fiscal rule flexibility and increased infrastructure expenditure. Foley wants to purchase EUR/GBP on declines toward 0.85, with resistance close to 0.8578, and believes that market anxiety will last into the fall.
UK budgetary uncertainty supports the euro cross
"We would seek to buy EUR/GBP on declines back to 0.85, with the 50 day sma now offering support around the 0.8578 level, as uncertainty regarding the budget might keep the UK market anxious until the autumn."
"If the government is borrowing to spend, the market might be more accommodating, but additional gilt supply will still need to be absorbed, and infrastructure projects are likely to take years before they enhance capacity."
"In any case, Burnham's measures to lower the electorate's cost of living still need to be funded."
"conjecture about potential tax increases is already beginning to surface, as is conjecture that this could have a contractionary effect on growth."
"This means modifying definitions of public debt to allow for increased spending on infrastructure."
UK budgetary uncertainty supports the euro cross
"We would seek to buy EUR/GBP on declines back to 0.85, with the 50 day sma now offering support around the 0.8578 level, as uncertainty regarding the budget might keep the UK market anxious until the autumn."
"If the government is borrowing to spend, the market might be more accommodating, but additional gilt supply will still need to be absorbed, and infrastructure projects are likely to take years before they enhance capacity."
"In any case, Burnham's measures to lower the electorate's cost of living still need to be funded."
"conjecture about potential tax increases is already beginning to surface, as is conjecture that this could have a contractionary effect on growth."
"This means modifying definitions of public debt to allow for increased spending on infrastructure."
