The GBP EUR exchange rate was -0.35% lower after Rishi Sunak announced his emergency budget package worth £15bn to ease the cost-of-living strain. A £5bn tax will also be levied on the oil industry after bumper profits on the back of soaring oil prices. Markets were buoyed by Federal Reserve meeting minutes that laid out the already-known rate tightening plan.
The GBP to EUR was trading at 1.1730 but is still trying to find a base for further gains around the 1.1700 level.
Sunak finally unveils his emergency relief package for households
Chancellor Rishi Sunak has said that millions of households will receive a £400 discount off their energy bills, while a £5 billion tax will be levied on oil and gas giants.
He was forced to take the action after soaring inflation impacted households with a rise in their energy bills and food.
Mr Sunak said that high inflation is causing “acute distress” across the country, telling MPs: “I know they are worried, I know people are struggling.”
He added that the government “will not sit idly by while there is a risk that some in our country might be set so far back, they might never recover”.
A £6 billion announcement of £400 in support from October replaces the initial plan for a £200 loan, and Sunak will scrap the requirement to repay the money. The plans will be funded by around £10 billion of extra government borrowing.
The oil & gas windfall tax had faced resistance amongst the government, with the Chancellor, among those, to warn about the impact it would have on future investment in the sector. But Mr Sunak said his plan for a 25% energy profits levy would be coupled with a new incentive for tax relief on investment.
There is no more economic data coming before the weekend and traders will look ahead to next week’s German inflation numbers.
European stocks higher with energy firms and Fed speak
European markets were slightly higher on Thursday, with energy shares and the US central bank leading the way.
Overnight, the Federal Reserve minutes from its May policy meeting showed policymakers’ belief in the strength of the US economy. However, they also agreed to raise interest rates by 50 basis points at the next two meetings to cool inflation. Investors took comfort from the news that was already priced into the market and there was relief that the path was not more aggressive. The minutes could hint at a pause in tightening after July if the initial hikes have some effect.
The European Central Bank has confirmed this week that it plans to start its own tightening in July, which begins with the removal of stimulus bond purchases. An interest rate hike in September is the current goal for the ECB.
Next week’s German inflation report could add some pressure to that plan, but the central bank have been stubborn in the face of inflation thus far.
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