France Finds Consumer Optimism as New Risks Emerge: Sterling Update

Here’s the latest currency news from our partner Moneycorp, to help you find out what your money is worth.

PM Burnham retreats from proposed stamp duty changes following criticism

PM Andy Burnham has retreated from the idea of abolishing stamp duty and council tax and replacing them with a levy based on the value of residential property. The proposal, floated only a day or so ago, has not been well received, with the press and commentators highlighting concerns around its administration and the potential adverse effects on the housing market.

However, the PM has been kite-flying again, this time with the suggestion that every estate could face a 10% ‘death tax’ charge to help fund social care. It is worth remembering that the prospect of an additional inheritance tax levy almost prompted Theresa May’s downfall, with the Conservative Party surrendering a lead of more than 20 percentage points in the polls ahead of the 2017 General Election.

Such proposals demonstrate that the government’s room for manoeuvre on spending remains limited, given the historically high level of taxation and the complexity of the tax system, particularly while political parties continue to rule out changes to the largest sources of revenue, namely income tax, VAT and employee National Insurance. The Burnham bounce may have encountered its first obstacle, one that could have a negative effect on financial markets.

Middle East tensions ease as Trump talks up peace prospects and Iran and Oman discuss reopening Strait shipping routes

Donald Trump appears more optimistic about a deal being reached in the coming weeks, although talks between the two sides have yet to restart officially. According to Bloomberg, the President suggested that contact between the parties continues, although Iran’s Foreign Ministry spokesperson disputed that claim.

Meanwhile, Oman and Iran are discussing the reopening of the Strait of Hormuz, a development that has helped lower oil and gas prices following their recent sharp rise.

However, tensions in the region are unlikely to have been fully eased by reports that Hamas’ security chief was killed in an overnight Israeli airstrike in central Gaza.

For the time being, optimism surrounding a resumption of peace talks, coupled with discussions over reopening the Strait of Hormuz, ought to bring yields lower and weaken the USD against currencies such as GBP and EUR, or at least mitigate the impact of negative domestic factors affecting those currencies, in my opinion.

US Fed meeting in focus, with some suggesting a rate hike remains possible

Another interesting theme doing the rounds is the suggestion in some quarters that the Federal Reserve could raise interest rates at Wednesday’s FOMC meeting. Citadel Securities published a note suggesting that such a move, while surprising, would support Warsh’s case that he is serious about providing no advance warning to markets and will respond to macroeconomic risks as he sees fit.

This remains very much against the consensus view and would likely compound some of the economic challenges already facing the US.

In the absence of any material economic releases ahead of the decision, due at 19:00 BST (14:00 ET), markets may well take comfort from developments in the Middle East, assuming progress continues on restoring energy supplies and the unofficial ceasefire holds.

French consumer confidence rises to a four-month high, but wildfires risk lasting economic damage

French consumer confidence data for July showed sentiment rising to its highest level since March. That offers some positive news for France, which appears at risk of another Budget dispute in the autumn, given the issues surrounding the 2027 Presidential election and the current composition of the French parliament, which requires the PM to rely on support from other parties.

Efforts to reduce the deficit appear unpopular among other political groups, and PM Lecornu could face renewed calls for his resignation if the Budget remains unresolved.

Wildfires in France, along with parts of Spain, also risk causing lasting economic damage. The tourism industry is likely to face adverse effects during the peak season, while costs to agriculture and other sectors are also rising. The prospect of more widespread disruption across affected regions could reduce activity by a few tenths over the quarter, leaving downside risks to growth in 2026 as a whole.

That is hardly positive for the EUR, despite the improvement in confidence, which is likely to prove temporary, in my view.

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