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Forex: Sterling eyed ahead of Budget, then FOMC

Sterling lost ground yesterday ahead of today’s annual Budget from the UK Chancellor’s Budget, but it still has come way to go to unwind its recent strength, in particular against the dollar after GBPUSD hit a four year high last month. The pound was knocked by fears of an escalation of the Ukrainian situation which saw Cable fall to 1.6545 before recovering back to the 1.6600 level and against the euro it hit a three month low with EURGBP touching 0.8400.
With just over one year to go to a general election in the UK, this Budget is likely to be more of a political affair than economic one. The affect this has on sterling or the FTSE 100 is often overplayed but this won’t stop investors from keeping a close eye, in particular when the Office of Budget Responsibilities growth forecasts are announced. Since the Bank of England moved the goal posts on forward guidance recently, the ability to predict the Bank of England’s first interest rate hike has become much harder, but expectations are still for the first rate hikes to come in early 2015. However, the OBR is due to up its growth forecast for 2013 from 2.4% to 2.7%, which is still lower than the more optimistic BOE and most other forecasters, so anything nearer the 3% could give sterling a boost.

Before then though there’s UK unemployment figures which is expected to show unemployment at 7.2%, then later all eyes will shift to the FOMC this evening where the Federal Reserve will announce their latest in respect of the taper and growth projections for the world’s largest economy.

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