The Chancellor delivered his budget speech this afternoon to the House of Commons. The event, as expected, received little market fall out as investors largely disregarded the spending promises given the political tumult caused by Brexit. Nevertheless, the news was positive: upgraded growth forecasts from the Office for Budget Responsibility; higher spending across the board; significant movements in taxation thresholds; and new treasury revenue streams. Despite the largely positive announcements backing up May’s Conservative Party Conference pledge to end the decade long commitment to fiscal austerity, Sterling failed to catch a bid, dropping through 1.28 against the Dollar mid-speech. In Germany this morning, a surprise announcement that Chancellor Merkel will step down as CDU leader caused a strong and sudden sell-off in the Euro. Adding to extant political risk within the Eurozone, Merkel also announced that her time in front-line politics is over when her present term in the Bundestag ends in 2021. Given that Merkel’s four term-strong Chancellorship has been a flagship of stability for the Eurozone’s most significant economy, the news was met with a considerable uptick in net short positions against the European single currency. However, as markets came to learn that Merkel intended to see out her term, only relinquishing the premiership of her Christian Democratic Union and not the Chancellorship of Germany, the Euro did gain some footing to re-test 1.14 against the Dollar. With mid-term elections in the US taking place next week, the Dollar managed to add to its already elevated value, trading more than 0.5% stronger on the day. Core personal consumption expenditure in the US was read today for the month of September, coming in perfectly in line with consensus forecasts, at 2%, equal to last month’s reading. The Dollar had been under pressure over the weekend as a combination of stock market jitters and Trump’s condemnation of the Fed’s tightening cycle led traders to begin pricing out the probability of a December rate hike late in Friday’s evening session. However, by avoiding the scathing criticism of Brexit and the crisis in Italy, the greenback secured good demand as its domestic interest rate expectations were restored.
Discussion and Analysis by Charles Porter
Milan, Italy The City of Milan has a late night noise problem and so it has acted unilaterally to resolve it-Italian style. A ban on the sale of take away food including ice cream and pizza after midnight is being imposed to protect the “peace and health of residents.” Here in the UK late night […]
British Pound Reports that the UK may cut its interest rates before the USA cut their interest rates were the final straw this past week for Sterling. A slew of less than helpful inflation, employment and finally retail sales saw GBP weaker , but then the suggestion that with the background of that less than […]
US Dollar Surging on a strong US economy together with further geopolitical tensions in the past week, USD is at its strongest versus EUR this year and came within a whisker of breaking through 1.06 in yesterday’s trading. Against the Japanese Yen USD was 154.55 which caused Japanese Finance Minister Shunichi Suzuki to break cover […]