British Pound Likely to Rise if UK Budget Dials Back Austerity
- British Pound may rise if UK Autumn Budget eases up on austerity
- Australian Dollar broadly lower, retracing yesterday’s risk-on rally
- Japanese Yen back on the offensive after funding FX’s brief retreat
All eyes are on UK Chancellor of the Exchequer Philip Hammond as he delivers the Autumn Budget, the game-plan for the coming fiscal year. A downward revision in growth forecasts is expected, limiting the government’s ability to deliver stimulus if Brexit uncertainty begins to really bite.
Still, the ruling Conservative party seems to have emerged from this year’s sobering snap election with the sense that the public has had it with austerity. That puts pressure on Mr Hammond to loosen the purse strings to some extent, even if that slows his effort to chip away at the budget deficit.
If he succumbs to calls for a softer fiscal touch, the British Pound may rise. A slightly more supportive posture at the Treasury might allow the Bank of England a bit more room to normalize monetary policy without derailing growth, boosting near- to medium-term interest rate hike prospects.
The Australian Dollar turned lower in Asia Pacific trade, losing ground against all of its G10 FX counterparts. The move seems corrective following yesterday’s equally broad-based advance, which looks to have reflected a recovery in risk appetite that carried the entire sentiment-linked commodity bloc upward.
The Japanese Yen traded higher even as share prices firmed across regional exchanges. That seems to suggest that this too was corrective. Indeed, the standby anti-risk currency was one of the weakest performers yesterday as the benchmark S&P 500 index issued its strongest close on record.
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** All times listed in GMT. See the full DailyFX economic calendar here.
--- Written by Ilya Spivak, Currency Strategist for DailyFX.com
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