Sterling and the Budget

16 March, 2016

Today is a big day for UK markets as the Chancellor presents his latest budget, detailing tax and spending plans for the coming years. To simplify things greatly, the way it used to work (as still does to some degree) is that all the unpopular and tough decisions are done early on in the parliament, allowing scope for pre-election give-aways close to the next election. It also used to be the case that there was a strong pre-budget ‘purdah’, but this is no longer the case, with the press peppered with stories about the way things are shaping up. These suggest that some of the Chancellor’s more ambitious plans on pension tax reform have been shelved, for fear of alienating their core area of political support, but given his recent comments on the economy, it’s not going to be a ‘giveaway’ budget.

So what about sterling? The UK currency was feeling heavy yesterday, cable falling from 1.43 to 1.4150 on nothing in particular. We were in a more risk averse environment (equities and oil lower) and it appears that cable is seeing a stronger negative correlation to risk. If we take the Citi risk measure (basket of assets creating index that rises when markets are feeling less risky and vice versa), sterling’s inverse correlation to it has been increasing of late. There was a modest positive correlation in the last 3 months of last year (0.14), compared to a negative correlation of 0.23 so far this year. For reference, the Aussie has a correlation of -0.40, with the yen the other end at 0.48.

On top of this, we have a Chancellor who was sounding a more cautious note on the economy over the weekend (the forecasts come from the independent OBR) and who is also likely to throw in the odd warning of the risk of Brexit in his speech today. This could well bring more caution on the part of the currency and I find it difficult to see a bullish outcome for sterling from budget today, with longer term investors likely to be selling into rallies as the Brexit referendum looms ever larger and give reason for more hedging from overseas investors.

Budget aside, we also have the US FOMC meeting later today, where no change in policy is expected, but the Fed is expected to revise it’s so-called ‘dot-plot’ of projections for future policy changes, which in December foresaw nearly 4 increases in rates before the end of 2016.


Source link  
Fed Monetary Policy Report to be released

This report is release twice a year and provides an insight into the conduct of monetary policy and economic developments and prospects for the future for the...

The Pound continues to weaken

Cable (GBPUSD) took a hit yesterday as Boris Johnson resigned from the Cabinet following the earlier decision by David Davis to part ways...

The latest Brexit proposals

The UK's Brexit Secretary David Davis has resigned along with two junior ministers, Steve Baker and Suella Braverman, over PM May's latest softer Brexit proposals...


Some ECB members want earlier rate hike

The markets remain subdued after yesterday's 4th of July celebrations in the US. Despite this Oil headlines are dominating the markets once again. US President Trump...

Gold has played out as a double top

The gold chart has played out as a double top with a break under 1300.00 signalling a move down to 1240.00 from its highs at 1365.00. We have now hit the 1240.00...

Gold chart has played out as a double top

The gold chart has played out as a double top with a break under 1300.00 signalling a move down to 1240.00 from its highs at 1365.00. We have now reached...


President Xi warns of Full Scale Trade War

Risk on sentiment returned briefly yesterday as markets retraced some of Monday’s selloff but sentiment in Asia has declined overnight. The PBOC cut...

USD extend losses in risk adverse markets

Stock markets fell hard yesterday as trade tensions deepened and the consequences of such action has investors worried. US Company Harley Davidson...

Market participants out of risk assets

Over the weekend President Trump indicated that if trade barriers and tariffs against the US were not removed that he would have no choice but to add further...


In the past 24 hours Bitcoin has gained 1.65% and reached $6379.52. Open your trading account with the best cryptocurrency brokers on special terms today.

In the past 7 days the EUR/USD pair has lost -0.7353% and is now at $1.1673. Start trading and making money on Forex today.

In the past 7 days Ethereum has lost -8.65% and is now at $451.024. Have the most popular cryptocurrencies compared online 24/7.


Top Brokers offering Daily Forex Market Reviews


Forex Currencies Forecasts


Top 10 Forex Brokers 2018

# Broker Review
1easyMarketseasyMarkets90%
2FXTMFXTM88%
3HYCMHYCM86%
4FIBO GroupFIBO Group79%
5FxProFxPro78%
6FXCMFXCM73%
7HotForexHotForex69%
8AvaTradeAvaTrade68%
9XMXM68%
10Alfa-ForexAlfa-Forex66%
  


Share: