The Pound Sterling rebounds from 1.2690 after a corrective move. The GBP/USD pair is expected to remain on its toes ahead of Chancellor Jeremy Hunt Spring budget announcement at 12:30 GMT.
In the 2024 budget statement, Hunt will present economic forecasts, fiscal stimulus measures, and borrowing outlook, among others. Market participants will keenly focus on the fiscal scope as it could be a game changer for inflation and the interest rate outlook. Large and unfunded fiscal stimulus could deepen fears of persistent price pressures, prompting the Bank of England to maintain the hawkish rhetoric.
On Sunday at BBC News, Jeremy Hunt said, “We’ve always said we would only cut taxes in a way that’s responsible and prudent.” The statement indicates that the exposure of the fiscal budget to tax cuts could be limited. However, many members of the Conservative Party want Hunt to convince the public that the economy will be out of the recession via higher stimulus offerings ahead of general elections later this year.
The Times reported on Tuesday that there will be an announcement of a two-percentage-point cut to NICs, which will result in an additional saving of 450 pounds for an average salaried worker in 2024. On the contrary, former Cabinet minister Priti Patel said on a broadcast that income tax cuts would be a better way to show that the government backs working households.
On the economic data front, S&P Global/CIPS reported Tuesday that the Services PMI came in lower than expected, dropping to 53.8 from the prior reading of 54.3. The performance was downbeat; however, the index was higher than every month in the second half of 2023. The agency said, “Another solid expansion of business activity across the service sector in February adds to signs that the UK economy has turned a corner after entering a technical recession during the second half of 2023.”
Meanwhile, the US Dollar remains on the back foot ahead of the Federal Reserve Chair Jerome Powell’s testimony before Congress at 15:00 GMT. Fed Powell is expected to reiterate that there is no urgency for rate cuts. The Fed is less likely to shift to policy normalization until it gets convinced that inflation will sustainably return to the 2% target.
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