Pound gains after UK budget date confirmed

LONDON (Reuters) - Sterling climbed on Tuesday after Britain’s new finance minister said he would deliver the budget as planned in three weeks, while a broadly weaker euro also lifted the currency.

FILE PHOTO: A shop assistant counts piles of British Pound Sterling banknotes at an Apple store in London, Britain November 18, 2017. REUTERS/Russell Boyce

Rishi Sunak, who took office last week when his predecessor Sajid Javid resigned in a government reshuffle, tweeted that he was “cracking on with preparations” for the scheduled March 11 budget. The unexpected change at the Treasury had raised questions about whether it would be delayed.

The pound, earlier down slightly against both the dollar and the euro on conflicting views put forth by Britain and the European Union about their trade negotiations, gradually rebounded after Sunak’s tweet.

Viraj Patel, currency and global macro strategist at Arkera, noted a delayed reaction in the currency to the news, adding that the pound hitting the key $1.30 level may have triggered a bout of short-covering by traders.

“The tweet may have been the catalyst for a few long bets that took us above $1.30,” he said.

After rising to as high as $1.3049, sterling sold off and was last up 0.1% at $1.3020.

Its gains against the euro were bigger, as the single currency sold off across the board on worries about the euro area’s economy.

The pound rose to a one-month high and was last at 82.945 pence, leaving the euro down 0.5% on the day.

GRAPHIC: Pound pushes past $1.30 after tweet by UK Chancellor

Last week sterling enjoyed its best week in two months, with markets betting Sunak would be more willing to support an increase in government spending and investment than Javid.

Constrasting comments from Britain and the EU on trade hit the currency earlier this week.

Prime Minister Boris Johnson’s Europe adviser, David Frost, said on Monday Britain would not be threatened into following EU rules to win a free-trade agreement with the bloc.

EU Commission President Usula von der Leyen has called on Britain to guarantee fair competition based on ambitious environmental and labour standards.

Data on Tuesday showed the number of people in work in Britain jumped again in the last three months of 2019, which underscored how the labour market defied a slowing of the broader economy ahead of December’s election.

“Once again cable is demonstrating its obsession with the $1.30 level,” said Jane Foley, head of FX strategy at Rabobank in London, noting that the pound has been supported by markets’ expectations that reduced political risk will unleash pent up investment demand in Britain.

“This morning, the zig-zag action in cable has continued with good UK labour data suggesting that the Bank is unlikely to see any urgency for a policy move.”

Signs of weakness in Britain’s labour market in the autumn prompted two Bank of England interest-rate setters to vote for a cut to borrowing costs. But the BoE’s other seven rate-setters have kept borrowing costs on hold amid signs that the economy has gained some momentum in early 2020 following Johnson’s election victory on Dec. 12.

Graphic: World FX rates in 2020

Graphic: Trade-weighted sterling since Brexit vote

Reporting by Ritvik Carvalho; Editing by Tommy Reggiori Wilkes, Alison Williams and Peter Graff