UK Budget
The pound has found some upside over the last few hours coming off its lows after a bumper session yesterday saw GBPUSD eventually post strong gains after the Chancellor delivered the UK Budget. Sterling was slightly lower into the morning session against its other counterparts, including the euro. However today is likely to be slow and painful for many as the Thanksgiving holiday means that volume will drop drastically throughout today as US markets close.
The headlines from the Budget have focused on the doom and gloom of the growth of the next 5 years after the Chancellor announced that GDP would not top 2% in his forecasting period. This is the first time in modern history that GDP forecasts have not shown at least one projection above 2%. We have to look at this from two points. Firstly, the growth figures must be taken with a pinch of salt.
Every year growth and inflation forecasts are the major aspect of the Budget that the market focus on for volatility, however these forecasts are very rarely correct and more often than not they are re-revised by the BoE to give a more accurate bearing on the longer term picture.
Secondly, these figures are based on the future that is relatively unknown. Post-Brexit Britain is a picture that is yet to be fully painted, and if we are to follow the ongoing negotiations it could well be a long way off. This is not to say that Brexit won’t see a long term period of stagnant growth, we have already spent £500K on it, and the chancellor has now pledged another £3bn, a figure that could rise, and doesn’t include the Brexit bill.
FOMC Minutes show concerns over inflation should not stop December hike
The FOMC meeting minutes yesterday hinted that we could well be instore for another rate hike in December after the minutes showed support for another move higher in rates. Although there does seem to be a wider worry around the inflation readings, the Fed seem ready to raise rates by another 25 basis points, and continue the trend of December rate hikes. The December meeting is scheduled for 13th of the month.