Sterling
The Pound appreciated across the board following Chancellor Phillip Hammond’s Autumn Statement yesterday as Britain announced its largest mid-year increase in government debt issuance since the financial crisis.
The Autumn Statement featured a surprisingly large budget black hole of £122 billion over the next five years, suggesting that ‘Brexit’ will directly weaken the UK’s public finances by £58 billion. The independent Office for Budget Responsibility (OBR) also slashed growth forecasts, with 2017 being downgraded from 2.2% to 1.4% and 2018 sliding from 2.1% to 1.7%.
In reaction to the expected negative consequences of ‘Brexit’ Hammond cancelled Osborne’s drive for a surplus by 2020, announced plans to spend £23 billion on innovation and infrastructure over the next five years and declared that an extra £15 billion of government debt would be issued in the 2016-17 fiscal year. Sterling investors were cheered by the moves – especially the debt issuance increase, which sent UK Gilt yields surging nine basis points. This was the largest one-day jump in a month and contributed to the Pound’s robust response to the budget.
Euro
The Pound to Euro exchange rate rallied by over a cent to strike a fresh two-month high yesterday as traders reacted favourably to Phillip Hammond’s Autumn Statement. The Chancellor’s decision to invest in infrastructure and innovation, in order to plug the UK’s perennial productivity gap, was greeted with open arms. As was the news that UK Gilt yields had increased due to higher issuance next year.
In the Eurozone it was reported that private sector output rose from 53.3 to 54.1 in November, outpacing forecasts of no change at 53.3. However, the positive ecostat was unable to influence the GBP/EUR rate; the single currency was dragged lower following negative moves in EUR/USD.
Incidentally, newswires reported that the European Central Bank is considering additional stimulus. In order to boost liquidity, the ECB is reportedly looking at ways to lend out portions of its mammoth debt pile, accrued under its expansive QE scheme.
US Dollar
Despite an imminent Federal Reserve rate rise and expectations of further tightening over the next few years, Sterling managed to strengthen by around half a cent against the US Dollar yesterday.
The ‘Greenback’ put in a bullish performance versus most of the other majors yesterday thanks to some outperforming durable goods data, which smashed forecasts of 1.7% with a score of 4.8%. However, the momentum was with the Pound yesterday and GBP/USD ticked higher, stopping just short of psychological resistance at 1.25 – a level considered fair value by many analysts
Canadian Dollar
The Pound to Canadian Dollar exchange rate leapt higher by around a cent yesterday as markets responded positively to UK Chancellor Phillip Hammond’s first budget statement, which featured softer-than-feared GDP forecast downgrades and some encouraging infrastructure and innovation spending hikes. Oil prices, one of the main drivers behind volatility in the ‘Loonie’, were relatively unchanged on the day.
Australian Dollar
Sterling rose in value by around 75 pips against the Australian Dollar yesterday as fears of a disastrous Autumn Statement were allayed by new debt issuance and a raft of productivity-boosting spending increases. The risk-sensitive ‘Aussie’, meanwhile, remained under pressure due to forecasts of tighter borrowing conditions in the US, which could easily depress investment trends in the Antipodean nation.
New Zealand Dollar
The Pound appreciated by around two cents against the New Zealand Dollar yesterday as markets reacted sanguinely to the Autumn Statement, despite a ‘Brexit’ related £122 billion black hole in the UK’s public finances.
Data Released
09:00 EUR German IFO – Business Climate (NOV) Medium 110.5