The Spring Statement is a significant fiscal event in the UK, outlining the government’s budgetary strategy. This year, it’s expected to feature around £15 billion in spending cuts, targeting welfare and departmental budgets, alongside a downgrade in growth forecasts by the Office for Budget Responsibility (OBR). These measures signal a tighter fiscal stance and a gloomier economic outlook, which could erode investor confidence in the GBP and lead to its depreciation in the forex market.
Simultaneously, the US plans to implement tariffs on April 2, with their scope and aggression—particularly toward the EU and China—still uncertain. These tariffs could disrupt global trade flows, influencing forex dynamics. Aggressive tariffs might weaken the EUR if aimed at the EU, or heighten global risk aversion if targeting China, potentially boosting safe-haven demand for the USD.
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Impact on currencies
- GBP: The Spring Statement presents notable downside risks for the GBP. Spending cuts and lower growth projections could sour market sentiment. A key concern is the gilt market: issuance for FY25/26 is projected at £302–304 billion, but a jump to £320 billion would hurt both gilts and the GBP. Monetary policy adds pressure, with markets pricing in just 40 basis points of Bank of England (BoE) rate cuts, while we anticipate three 25 basis point cuts, suggesting a looser stance that could weaken GBP further. GBP/USD risks falling below 1.2860, potentially hitting 1.2800 on the statement day.
- USD: The USD is in a wait-and-see mode, with the DXY index holding below 104.50, buoyed by stable equities and cautious Federal Reserve rhetoric. The April 2 tariffs could lift the USD, especially if they aggressively target the EU or China. A recent dip in consumer confidence also stokes stagflation fears, favoring the USD over cyclical currencies. The DXY is likely to trade between 104.00–104.50, with upside potential if GBP weakens post-statement.
- EUR: The EUR faces underappreciated risks from potential US tariffs, given the EU’s significant trade surplus with the US. Volatility has eased, with EUR/USD stabilizing after early March fluctuations, and support lies at 1.0765/70. However, a GBP drop post-statement could drag EUR/USD to 1.0730. Medium-term, we predict EUR/USD at 1.05 by Q2’s end, driven by tariff fallout, as markets hold ECB terminal rate expectations at 1.75–2.00% without a hawkish shift.
Geopolitical implications
The US tariffs on April 2 carry broad geopolitical weight, potentially straining trade relations with the EU and China. Aggressive measures could disrupt supply chains and spark retaliatory actions, increasing forex market uncertainty. Tariffs on EU goods might weaken the EUR by undermining trade stability, while those on China could elevate global risk aversion, supporting safe-haven currencies like the USD and JPY.
In the UK, the Spring Statement’s fiscal tightening could stir domestic political tensions. Harsh spending cuts might trigger unrest or instability, further denting confidence in the GBP. These geopolitical and economic shifts underscore the interconnected risks facing forex markets in the coming weeks.
Conclusion
The Spring Statement on March 27, 2025, looms large for the forex market, threatening the GBP with fiscal tightening and growth downgrades. The USD holds steady with upside potential if GBP or EUR falter, while the EUR faces tariff-related risks that could materialize in Q2. Traders should watch gilt issuance numbers and tariff details closely. Though risks dominate, opportunities may emerge for those adept at navigating this volatile landscape.
Author
Rutger Lokin is a seasoned market analyst and co-founder of The Trading Academy, with 7 years of experience trading both technically and fundamentally, grounded in macroeconomics. Holding a bachelor’s degree in Computer Science and Economics, Rutger combines analytical precision with economic insight. His dual proficiency in technical analysis and fundamental economic drivers provides uniquely sharp perspectives on market trends and dynamics. Rutger leverages this expertise to excel in navigating the complexities of the financial markets.
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