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Posted March 21st, 2013 by Charles Purdy

A neutral UK budget helps sterling | Smart Daily Currency Note

GBP/EUR – 1.1696

In arguably the biggest sterling news day of the year we saw a one-and-a-half cent range for sterling as it reacted to the day’s events as they unfolded. Prior to the release of the minutes from this month’s Monetary Policy Committee (MPC) meeting  sterling weakened as there was a belief they would support further quantitative easing. That belief was misplaced, and the early sterling losses were more than undone by a one cent jump in rates. Then budget concern kicked in to undo the gains, but the concern was also misplaced. In his speech George Osborne announced that the Office for Budgetary Responsibility forecast that the UK will leave recession by the end of the year, and set out a budget to drive the growth necessary to do so. He announced a new remit for the Bank of England saying that the 2% inflation target is "necessary but not sufficient", and that Mark Carney’s bank should be able to focus on growth as well as inflation, much as the American Federal Reserve does. The Chancellor announced a 1% cut to corporation tax, as well as national insurance relief for small businesses. The pro-growth, pro-business, budget saw sterling drive back up, and settle at 1.5130 against the US dollar, and 1.1685 against the euro at the close of play in London. Today is unlikely to see the same level of volatility although any news from Cyprus is likely to cause a market reaction, with the only significant UK release being retail sales in the morning  and we have to look back as far as October for good news from the retail sector. Get in touch now to discuss the effect of the budget, and to get a live rate.

After a tough few days for the euro, yesterday saw some respite in the decline as the euro strengthened against the US dollar and sterling as solutions for the Cyprus problem still seem possible. The ECB stated that it remained committed to providing liquidity in the troubled state, easing some of the more immediate fears surrounding the Cypriot bailout. After the Cypriot government’s decision to reject the initial bailout proposal, possible solutions have continued to be sought in the form of continuing negotiations to agree a deal with the ECB as well as seeking financial help from Russia. There is still a great deal of uncertainty surrounding how events will unfold and it was recently announced that Cypriot banks will now stay shut until Tuesday 26th to prevent mass withdrawals. Manufacturing data from Germany and France may also have an impact on performance, but is likely to be overshadowed by other events. The euro may weaken further if some sort of agreement is not reached in a timely fashion. All eyes remain on Cyprus. Call in now for live rates and up to date information.

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