Pound near 17-month high against euro ahead of UK budget

what happened

The pound slipped against the dollar but stayed near a 17-month high versus the euro on the eve of the UK budget. Finance minister John Healey will try to balance the demands of bond investors with pledges to ease the cost of living for households, Reuters reported.

Sterling traded at 83.67 pence per euro, close to last week's 83.63, its strongest level against the single currency since May 2025. Against the dollar it fell 0.2% to $1.3316, though that move mostly reflected a firmer dollar against the euro, yen and Swiss franc. Traders expect a fairly calm budget on Wednesday, while political turmoil in France has hit French government bonds and weighed on the euro.

Healey is likely to offer help to households facing another rise in energy bills and has hinted that businesses will get breathing room from higher costs. Morgan Stanley analysts said in a Tuesday note that investors expect a low-key, low-volatility event, but markets could react sharply if the budget brings a big spending and tax increase.

why it matters

The backdrop is tough: the US-Israeli war on Iran has pushed up inflation and driven government bond yields worldwide to multi-decade highs. Investors are watching the size of the fiscal headroom, the amount and type of borrowing, and how credible the plan is. Options markets also point to expectations of a muted event.

market impact

Pound and gilts: sharp market reaction possible if the budget brings big spending or tax increases

• ↔Pound versus euro mixed — a calm budget would support sterling, while large spending and taxes could weigh on it
• ↔UK gilts mixed — confidence in the fiscal plan would lower yields, while heavier borrowing would push them up

tags

instruments