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Sterling is on the back foot this morning amid political uncertainty, notes of gloom on the UK economy and increased expectations the US will tighten monetary policy.
The pound had already taken a tumble yesterday after softer than expected readings on UK house prices and retail sales last month, moving below $1.23 against the dollar for the first time since January.
A decision last night from the House of Lords backing a demand for parliament to be given a vote on the final Brexit deal with the EU has since increased political uncertainty and is weighing on the pound.
Sterling fell 0.3 per cent in morning trading in London to $1.2163, its weakest level against the dollar since January 17th. Yields on 10-year gilts were up a little by 2.3 basis points at 1.21 per cent. (Yields rise when prices fall.)
The pound is also being weighed down by the divergence with the US, where the Federal Reserve is poised to raise rates later this month.
Some analysts reckon today’s Budget, in which the chancellor, Philip Hammond, is expected to give new forecasts for economic growth and the budget deficit, could swing things back in the pound’s favour.
ING analysts argue this morning that an “upbeat budget could deliver a little relief” to the pound, predicting the Office for Budget Responsibility will revise 2017 forecasts for UK economic growth upwards.
“Sterling has been under-performing on signs of consumer fatigue and the House of Lords adding further amendments to the Article 50 bill (which the House of Commons should turn over next week). For today, we could see some modest sterling out-performance on the budget,” they wrote in a note.
But Citi strategists reckon the Budget will have minimal impact on sterling.
Josh O’Byrne, a currency strategist at Citi, said:
The UK budget shouldn’t be a mover, with very little expected to change given spring and autumn budgets are in effect trading places. We prefer to sell rallies in sterling.
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