March 21, 2025 – Written by Frank Davies
STORY LINK Pound Sterling Forecast: “Breach of 1.2930” Would Show Top vs Dollar
Reservations over the UK economic situation and expectations of budget tightening next week hampered the Pound on Friday while a further setback to risk appetite also unsettled Sterling in global markets as equities lost ground again.
The Pound to Dollar (GBP/USD) exchange rate retreated to 1.2925 after again failing to sustain a break above the 1.3000 level.
According to UoB; “a breach of 1.2930 would mean that GBP is not rising further.”
The Pound to Euro (GBP/EUR) exchange rate settled just below 1.1950.
Domestically, fiscal policy will be centre stage ahead of the March 26th budget statement.
According to ING; “We still look with some concern at next week’s budget events from a sterling perspective. Implications for growth and the bond market argue against short-term bullishness on the pound. We still prefer playing any GBP weakness through Cable rather than EUR/GBP.”
The UK government borrowing requirement increased slightly to £10.7bn for February compared with £10.6bn the previous month and well above consensus forecasts of £7.0bn.
For the first 11 months of 2024/25, the deficit widened to £132.2bn from £117.5bn last year.
The OBR forecast an 11-month shortfall of £111.8bn and a full-year deficit of £127.5bn.
According to Capital Economics UK economist Alex Kerr; “the significant overshoot in borrowing in February highlights the Chancellor’s tight fiscal backdrop. The OBR will still most likely conclude that the chancellor’s headroom against her fiscal rules has been wiped out.”
He added; “So we expect her to announce further non-defence spending cuts, on top of the welfare cuts already unveiled earlier this week.”
Pantheon Macroeconomics commented; “taxes will rise in October”.
Elsewhere, the GfK consumer confidence index edged higher to -19 for February from -20 the previous month and in line with market expectations.
The index remained well above 2022/23 levels, but still below the longer-term average.
Neil Bellamy, Consumer Insights Director, NIQ GfK commented; “If consumer confidence were a patient languishing in a hospital bed, a doctor would say there is little evidence of a recovery as yet. Where do we go from here? The current stability is to be welcomed but it won’t take much to upset the fragile consumer mood.”
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TAGS: Pound Euro Forecasts
