Sterling dives on soft inflation and spending cut bets [Video]
![Sterling dives on soft inflation and spending cut bets [Video]](https://editorial.fxsstatic.com/images/i/inflation-02_XtraLarge.jpg)
The latest data from the Conference Board came to back the mounting concerns among Americans regarding the future of the economy and inflation. On the other side of the Atlantic Ocean, the German data tells the exact opposite: business optimism in Germany hit the highest levels since last summer as the massive government spending that the German government agreed to unlock brings hope across manufacturers. As such, the convergence in sentiment between the two continents continues to develop, be confirmed by data and back the rotation trade. But the European spending narrative is now widely priced in. Therefore the European investors will be facing the tough reality of the tariff game in the coming weeks and the latter could slow the rally that we saw in the European equities and the euro over the past three months.
In the UK, the tariff fears are amplified by the fact that the UK won’t benefit from the ample budget spending that the continental European peers will. On the contrary, the spending hopes for the UK have been crumbling as borrowing costs keep rising and decrease Rachel Reeves’s fiscal headroom. Rachel Reeves is expected to announce a £10bn cut in day-to-day government spending. The smaller the envelop, the bigger the impact on sterling.
Author
Ipek Ozkardeskaya
Swissquote Bank Ltd
Ipek Ozkardeskaya began her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked in HSBC Private Bank in Geneva in relation to high and ultra-high-net-worth clients.
