British pound drives higher on US dollar weakness

British pound drives higher on US dollar weakness

The British pound is moving higher Monday, building on US dollar, tax reform-related weakness. Sterling could be in for a bumpy road this week, however, as Chancellor Philip Hammond announces his Budget, Wednesday.

By 1120 BST, the British pound was trading around the $1.3249 level, off earlier highs but still up from the $1.3220 closing level it hit at the UK market close, Friday.

Dollar sentiment remains subdued

While the US dollar gained some ground against the euro in overnight trading, following news had collapsed without a deal, much of that upward move has now reversed. And, the weaker dollar sentiment is evident in the cable pair, too.

US dollar investors remain uncertain over the future of the currency, as the highly anticipated US tax reform process continues to move slowly. Indeed, while the Republicans passed a slightly revised plan Friday, the Senate is still working on its own revised tax reform plan.

Against this background, currency investors are buying the British pound and Euro, while leaving the US dollar in the cold.

Looking ahead to this week, however, the path of the sterling/dollar exchange rate is unclear. That’s mainly due to politically-related concerns.

Eyes will turn to UK Budget

Wednesday will be a big day for the British pound and UK stock market alike. That’s because the Chancellor will, yet again, attempt to please as many people as possible with his latest Budget announcement.

However, it’s likely he will fail. But, who will be disappointed and who will be pleasantly surprised is currently unknown.

It’s probable that Hamond will push back expectations on achieving a UK budget surplus, something that should be welcomed by many. But, there are other areas that will likely fall short, including the probable lack of a tax spending spree.

If investors don’t feel the Budget provides enough support for the economy, the British Pound could tumble.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

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