Sterling rallies after Budget speech

Sterling rallied on further detail of how the deficit would be tackled , but experts see less chance for further sustained strength as most of its effects are already priced in.

The currency was rallying in the moments following chancellor George Osborne's Budget speech against both the euro and the dollar on hopes that the government was taking rapid steps to tackle the UK's budget deficit.

At the end of the chancellor's speech, sterling had risen from £1.4689 to £1.4750 against the dollar and by £1.1990 to £1.2020 against the euro.

Mark Deans, currency dealing manager at Moneycorp, said the Budget had been generally well received as the pound strengthened by almost 0.2% against the Euro soon after Osborne began to speak.

He said the chancellor's 'determined action has earned us credibility in international markets.'

'There were no huge shocks for the currency markets. VAT has risen to 20%, as was expected, and public spending cuts are due to increase by 25% over the next four years. These cuts needed to happen.'

Deans said that the measures announced today made a credit downgrade for the UK less likely and had reassured market confidence on the pound but felt that any further rally for the currency was probably less likely as the austerity packages announced today were already priced in by the markets.

'In the medium term, this should allay investors’ fears and prevent them from tarring the UK with the same brush as other European countries had the misfortunate of being landed with, he said.

Insight head of currency Dale Thomas said the announcement had been largely as expected so did not anticipate any sharp sharp move in broad sterling valuations.

He added: 'The positive aspect is that action taken to reduce the deficit via spending cuts not increased taxation should lead to a higher potential growth rate and a lower risk of a fiscal/sterling crisis. However  there is a lot of policy credibility in the GBP price already. 

'All GBP’s gains vs the EUR since the start of the year are as a result of shift in relative perceptions of fiscal and economic vulnerability and not because of expected changes in relative monetary policy.'

Mark Bolsom, head of the UK trading desk at Travelex Global Business Payments said: 'Markets will have priced the news in, as much of it was leaked before and Osborne’s announcements were, in the main, expected.