Anticipation surrounding the March 6 UK Budget is gradually permeating into the Pound Sterling (GBP) price dynamics. Analysts at ING delve into the potential ramifications of the Spring Budget on the GBP.
GBP would again come under pressure were Chancellor Hunt to misread the mood of gilt investors
Ongoing investor interest in the carry trade is anticipated to provide adequate support for the British Pound. With our medium-term fair value assessments indicating that GBP/USD is currently undervalued by approximately 7%, coupled with the forecasted weakening of the Dollar later in the year, we maintain a positive stance, targeting just above 1.3000 over the next 12 months.
However, should Chancellor Hunt miscalculate the sentiment of gilt investors, potentially causing another disturbance, Sterling could face renewed downward pressure. Short-term models indicate that a 2% depreciation in Sterling could easily materialize if investors once again seek a risk premium for exposure to Sterling asset markets.
On a constructive note for Sterling, there is speculation suggesting that Chancellor Hunt is exploring ways to enhance incentives for global multinationals to list in the UK or encourage British savers to direct their investments toward UK asset markets. While these measures may not reach the extent of the US Homeland Investment Act, a significant driver for the Dollar, they warrant close monitoring.
