Sterling
British Chancellor of the Exchequer Phillip Hammond received a boost yesterday ahead of his first budget statement. October’s current account deficit widened by just £4.8 billion, which was the lowest since 2008 and -25% less than a year earlier. However, the Pound failed to rally on the news because, at £48.6 billion, the current financial year’s deficit is already very close to March’s target of £55 billion. So, although yesterday’s figures were better-than-anticipated, the Chancellor still has little room to manoeuvre in terms of soothing the impact of ‘Brexit’ with fiscal stimulus.
Analysts predict that today’s Autumn Statement will feature slower growth forecasts, weaker tax revenue predictions and higher unemployment benefit costs. Although Hammond is likely to soften the tough approach to austerity his predecessor George Osborne championed, he may struggle to announce the kind of debt-backed spending programmes that many British business owners believe the country needs.
Euro
The Pound to Euro exchange rate tumbled by around -80 pips from a two-month high yesterday. It seems that profit-taking, following Monday’s strong Sterling gains, was partly to blame for the dip in GBP/EUR, while fears that today’s Autumn Statement could contain downgraded economic forecasts also appear to have weighed on demand for the Pound.
Across the Channel in the Eurozone it was reported that consumer confidence improved for the third month on the trot in November. The indicator ticked higher from -8.0 to an 11-month high of -6.1, which suggests the currency bloc will see GDP growth of around 0.4% in the fourth quarter of the year.
However, the single currency could easily find itself on the back foot over the next few months if European Central Bank stimulus bets and concerns surrounding a number of high-profile elections and an Italian referendum continue to plant seeds of doubt in investors’ minds.
US Dollar
‘Cable’ slid below psychological resistance yesterday to register an -80 pip daily loss ahead of today’s Autumn Statement.
Having said that, we could see Sterling fight back against the US Dollar tomorrow if currency speculators are impressed by any surprisingly bullish news items in the Chancellor’s first budget statement. The long-term implications for GBP/USD, however, appear to benefit the ‘Greenback’, which is likely to benefit from a tightening of monetary policy.
The Federal Reserve is almost unanimously expected to restart its tightening scheme with a 25-basis point hike in December, and President-elect Donald Trump’s reflationary policy plans suggest that the US central bank will be persuaded to drive interest rates higher through a series of additional rate hikes over the next two years.
Canadian Dollar
The Pound softened by around half a cent versus the Canadian Dollar yesterday. The ‘Loonie’ was boosted by an acceleration of 0-60 (basis points) in Canadian retail sales in September. The ecostat printed at 0.6%, which pleased traders. Investors were also impressed with the latest round of upbeat OPEC output deal predictions. Nigerian OPEC spokesman Ibrahim Waya said the deal, which aims to cut global production levels in order to drive prices higher, was ‘likely’ to be agreed by all members, which boosted both oil and the ‘Loonie’.
Australian Dollar
Sterling ceded -150 pips to the Australian Dollar yesterday as profit-taking stances kicked in following the seven-week high that GBP/AUD struck on Monday. In other crosses, the ‘Aussie’ Dollar suffered losses as Trump’s proposed reflationary policies weighed on investors’ appetite for risk.
New Zealand Dollar
Usually, one of the most volatile major currencies, the New Zealand Dollar has actually trodden a relatively stable path versus the Pound in recent sessions.
GBP/NZD softened slightly yesterday but, unlike in the past, the ‘Kiwi’ has not been rising and falling as steeply as its Antipodean cousin (the ‘Aussie’) over the last few days. Indeed, GBP/NZD is currently trading at almost exactly the same level as it was this time last week, whereas GBP/AUD is almost three cents higher.
Data Released
12:30 GBP U.K. Autumn Budget Statement High
13:30 USD Durable Goods Orders (OCT P) High 0.8%
19:00 USD U.S. Fed Releases Minutes from November 1-2 FOMC Meeting High