Pound US Dollar (GBP/USD) Exchange Rate Plummets as Autumn Statement Falls Flat
(Updated 16:25, 22/11/23) The Pound US Dollar (GBP/USD) exchange rate plunged this afternoon after the UK Autumn Statement seemed to disappoint markets.
Chancellor Jeremy Hunt unveiled his new tax and spending plans, which had been trailed as measures to ‘turbo-charge growth’. However, some industry leaders expressed disappointment, particularly over Hunt’s plans to increase business rates for larger firms.
In addition, the Office for Budget Responsibility (OBR) downgraded its forecast for UK growth and employment.
The combination of disappointing fiscal policies and a bleaker economic outlook weighed on the Pound (GBP).
Meanwhile, the US Dollar (USD) was boosted by a far larger-than-forecast drop in US jobless claims. The data pointed to ongoing tightness in the US labour market, thereby deterring bets on Federal Reserve interest rate cuts.
At the time of writing, GBP/USD is trading at around $1.2461, down 0.6% on the day.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Stalls as UK Investors Hold Breath
The Pound US Dollar (GBP/USD) exchange rate has ceased this week’s upward trend today, moving broadly sideways ahead of the UK’s autumn statement. As experts wager the US Dollar (USD) downtrend cannot continue, UK citizens are expected to benefit from the introduction of tax cuts.
At the time of writing, GBP/USD is trading at $1.2534, virtually unchanged from yesterday’s levels.
Pound (GBP) Trades Mixed as Investors Await Autumn Statement
The Pound (GBP) is trading in a wide range against its peers today ahead of a key statement from the UK Chancellor. Jeremy Hunt is expected to announce tax cuts that will ease pressure on British citizens. Nevertheless, high interest rates are set to stay.
The statement will be comprised of 110 measures to increase economic growth as well as cuts to National Insurance contributions and business taxes. It is also expected that new government investments will be announced to boost growth in industries such as electric vehicle manufacture.
Aside from the positives, there are concerns that government action will be constrained by fears of stoking inflation. Cost pressures are still a big worry for households and businesses, as a Treasury spokesperson concedes:
‘Inflation is still double what it needs to be, so we are very aware of the need to increase growth without doing anything inflationary.’
As the chancellor prepares to unveil his plans, trading sentiment has eased off yesterday’s highs. The Pound hit a 10-week high against the US Dollar on Tuesday as Bank of England (BoE) Governor Andrew Bailey emphasised that the central bank’s interest rate regime was correct in the circumstances.
US Dollar (USD) Rallies After Long Slide Down
The US Dollar is staging a recovery today after a long bearish streak spanning several weeks. Following dovish communications from the Federal Reserve bank, USD investors had been exercising caution. Analysts affirmed today, however, that the currency may be oversold.
Experts at MUFG bank commented:
‘FOMC participants were all in agreement that they should ‘proceed carefully’… The FOMC minutes have not altered market expectations for Fed policy. The price action in the FX market appears to suggest more that the US Dollar had become oversold.’
While US durable goods orders are expected to add to the list of pressures on the ‘Greenback’, estimated to print at –3.1%, initial jobless claims are expected to have eased. Estimates put the latest reading at 225k, from 231k the week before.
Moreover, the US Dollar may find support in risk aversion. Despite a temporary ceasefire agreement between Israel and Hamas, the fighting is expected to continue once hostages have been released.
In a statement to the press, Israeli prime minister Benjamin Netanyahu remarked: ‘We are at war and we will continue to fight. We will not stop after the ceasefire.’
GBP/USD Exchange Rate Forecast: Autumn Statement to Buoy Sterling?
Following today’s autumn statement from chancellor Hunt, the Pound may find support from the prospect of reduced taxation. If the tone of the statement is upbeat rather than cautionary, investors may overcome their trepidation.
Elsewhere, weak US data could put a pin in the US Dollar rally. If durable goods orders tumble as expected, the ‘Greenback’ may incur losses, although following the currency’s recent slide, investors may consider USD oversold.
Into tomorrow, UK manufacturing data is expected to improve fractionally. As the data is expected to remain in contraction territory, however, it is unlikely to supply GBP exchange rates with a boost.