GBP holds steady on back of UK Autumn Statement
Currencies Direct November 25th 2016 - 2 minute read
The key financial news this week was expected to be the announcement of the UK's Autumn Statement on Wednesday, in which chancellor Philip Hammond was set to announce what Brexit would mean for the economy. And although the forecast is somewhat bleak, the announcement was not as dovish as many expected, with the pound experiencing a week of steadying as a result.
Elsewhere, the dollar continues to gain heavily against the Japanese yen, while the euro has slipped to a 20-month low.
The biggest news for the UK this week was chancellor Philip Hammond's first Autumn Statement since taking over from George Osborne. And despite worries of a painful Brexit in terms of finance, the overall message was not as dovish as feared, and sterling actually saw growth against the weakening euro in the hours after Wednesday's announcement.
Immediately following the Statement, the pound's value against the euro rose to its highest since mid-September, although it has started to slide a little towards the weekend to compensate for an oversold EUR/USD.
Elsewhere, the announcement that the UK's economic growth in Quarter three was in line with GDP forecasts of 0.5% gains was good news for the markets, but the revised forecasts for 2016 as a whole, and 2017, from the Office for Budget Responsibility around the Autumn Statement, meant that the GBP/USD pairing remained broadly quiet throughout the week, with little in the way of change since the slight increase for the pound last week.
The euro hit a 20-month low on Thursday against the dollar, in spite of the strongest German business confidence for two years, it was reported, and although it enjoyed something of a respite on Thursday while the US celebrated Thanksgiving, this is only expected to be temporary.
Kathleen Brooks of City Index indicated that the euro continues to suffer from a focus on austerity among policymakers, which she said is "in stark contrast with the fiscal largesse in the US and the UK".
It's long been argued that the US Federal Reserve must raise interest rates before the end of the year in order to preserve credibility and ensure economic stability, and it appears this is the way it will look to go. The bank is expected to raise rates by a quarter of a point in December, which helped it to remain relatively strong against both the pound and euro throughout the second half of the week.
The dollar also welcomed a boost from the new economic data published this week, which showed Core Durable Goods Orders having risen by 1%, five times faster than forecast, and a strengthening sentiment towards business investment. When this was coupled with weak CPI data from Japan, the dollar continued its strong performance against the yen following its five-month peak hit last week.
The worryingly weak CPI data from Japan shows that authorities have a way to go to improve financial confidence in the nation, and the yen has reflected this this week. While this was wholly expected, it's the eighth month in a row that CPI has fallen in Japan, and the currency exchange rates reacted accordingly.
The yen has fallen hard since midweek against both the pound and dollar, leaving JPY facing another hard week, although it has seen slight recoveries on Friday against both key currencies.