Pound subdued as Hunt warned against unfunded tax cuts

The pound was muted on Tuesday after Chancellor Jeremy Hunt was warned against announcing any unfunded tax cuts in next week’s Spring Budget.

Sterling is trading in a wide range so far this morning, with GBP/EUR muted at €1.1690 and GBP/USD slipping to $1.2646. GBP/CAD is rangebound at CA$1.7142, while GBP/AUD climbs to AU$1.9433 and GBP/NZD soars to NZ$2.0712.

Coming up, will confirmation the US economy enjoyed a strong end to 2023 help to bolster the US dollar today?

What’s been happening?

The pound traded sideways through yesterday’s European trading session amid a warning that GBP exchange rates could plunge if Chancellor Jeremy Hunt misjudges his Spring Budget.

Analysts suggest Hunt has limited headroom to lower taxes and warned the Chancellor against announcing any unfunded cuts or risk repeating the chaos that followed Liz Truss’s mini-budget in 2022.

The US dollar was also subdued on Tuesday, following the publication of the latest US durable goods orders data. Order growth contracted a whopping 6.1% month-on-month in January, the largest fall in new orders since April 2020.

Despite the lacklustre data a cautious mood helped to temper USD losses.

At the same time, the euro was left rangebound yesterday in the wake of Germany’s latest consumer confidence figures. March’s index revealed the outlook among households remains deeply negative, with consumers’ desire to rein in spending likely to increase the risk of Germany slipping into a recession.

What’s coming up?

Looking ahead, the focus today is likely to be on the publication of the latest US GDP figures later this afternoon.

The second estimate of growth in the last quarter of 2023 is expected to confirm the US economy expanded by a healthy 3.3% and may help to prop up demand for the US dollar today.

In the meantime, the Eurozone’s latest economic sentiment index is expected to report a modest improvement in morale this month. Will this be enough to lift the euro this morning?

For GBP investors the focus will be on a speech by Bank of England (BoE) policymaker Catherine Mann. As one of the BoE’s more hawkish members, could her comments boost the pound?