Pound static after Hammond’s amiable Budget

Chancellor Philip Hammond delivered his Budget yesterday, but there was little within it to cause much movement for the pound.

Sterling is largely on weak form today, with GBP/EUR down to €1.1251 and GBP/USD stuck at opening levels of US$1.3314. GBP/AUD has softened to A$1.7477, GBP/NZD has slipped to NZ$1.9345, and GBP/CAD is flat at C$1.6911.

Just what was it about the Budget that left markets indifferent? Read on to find out…

What’s been happening?

Chancellor Philip Hammond set out his latest spending proposals before Parliament yesterday, but markets found little reason to move in either direction following the conclusion of his speech.

Amongst the positives were an additional £3 billion to spend on Brexit contingency measures, helping the economy to weather any potential negative side effects from a split from the European Union.

However, the Office for Budget Responsibility (OBR) had cut growth forecasts for this year and productivity and wage projections for the coming four years.

Prior to his delivery, Hammond had described the Budget as ‘balanced’, and that perfectly encapsulates the Pound’s response to it.

GBP/EUR ended the day lower after a rosy performance by the Eurozone’s November consumer confidence index.

The index had been forecast to improve from -1.1 to -0.8 points, but instead took markets aback by rising above 0 and into positive territory for the first time since the beginning of 2001 – a whole ten points above the long-term average.

GBP/USD was able to advance thanks to the approach of meeting minutes from the Federal Open Market Committee (FOMC), covering the policy gathering that ended on 1^st November.

Markets were hoping for strong signals of an interest rate hike next month, but were aware that the Fed could disappoint with a more cautious outlook, leaving little demand for the US dollar.

Additionally, a shock -1.2% decline in durable goods orders during October, against forecasts of 0.3% growth, also soured the mood towards USD.

What’s coming up?

A second estimate of UK third-quarter GDP will be released shortly, with economists expecting no revisions to the earlier projections.

This would underline the current sluggish trend for the UK economy which could weigh on the pound, although there is always the potential for a surprise revision upwards.

As well as this morning’s slew of Eurozone PMIs, today’s Eurozone data calendar also promises the accounts of the latest European Central Bank (ECB) monetary policy meeting.

How confident the Governing Council appears regarding the recent cut to quantitative easing will be key in determining whether the euro react positively or negatively to the minutes.

The FOMC signalled in the meeting minutes that another rate hike was likely in December, but policymakers were heavily divided over the issue of inflation.

This lack of unity suggests that there is no guarantee of further rounds of monetary tightening early in 2018, so the US dollar is likely to be softening today.