UK Budget Shrinks Fiscal Buffer Without Market Shock; Fed Dissent in Focus
Sterling and UK gilts showed little reaction to Chancellor John Healey’s Budget, despite higher borrowing forecasts and a reduction in fiscal headroom. The remaining buffer against the fiscal rule fell from £23.6B in March to £15B, broadly matching market expectations. Attention is shifting to today’s Fed decision, where a hold is overwhelmingly priced at 90.6%, but the voting split could reveal whether pressure for faster tightening is building.
AUD/NZD Breaks Higher as RBNZ Surprise Widens RBA Policy Divergence
AUD/NZD surged through 1.2489/93 resistance after two policy shocks 30 minutes apart: Australia's CPI jumped to 4.3%, reinforcing a November RBA hike, while the RBNZ unexpectedly held at 2.75% in a narrow 4–3 vote. The move is overwhelmingly an NZD story—not an AUD one—with the cross now targeting 1.2624 and potentially 1.2845.
Euro Weakest as French Bond Spreads Widen Again; Australian CPI and UK Budget Next
Euro returned to the bottom of the major-currency ranking on Tuesday as renewed pressure on French government bonds partly reversed Monday’s relief. France’s 10-year yield rose 5.2bps to 4.955% while the German Bund yield fell 3.1bps to 3.339%, widening the OAT–Bund spread from around 153bps to 162bps. Spanish, British and US yields also declined, so the move was French-specific.
France Avoids Downgrade, but EUR/GBP and EUR/CHF Face Fresh Downside Tests
Moody's kept France's Aa3 rating with a negative outlook, and French bonds rallied Monday—yet Euro saw little relief, with EUR/GBP and EUR/CHF still trading near key support. The narrowing OAT-Bund spread hasn't translated into a Euro rebound, suggesting markets still see France's fiscal risk as unresolved rather than cleared.
