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British Pound Stays Under Pressure After Cautious Pre-Brexit Budget

British Pound Stays Under Pressure After Cautious Pre-Brexit Budget

Oliver Morrison, Analyst

Talking Points:

  • The UK Chancellor’s conservative budget is met with a muted reaction in the markets.
  • The Pound rose after the statement, but quickly fell back as bearish sentiment reemerged.
  • See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

UK Chancellor Philip Hammond’s budget has failed to spark life into the beleaguered British Pound.

As expected, the Office for Budget Responsibility revised its near-term economic forecasts higher. It now thinks UK GDP growth will be 2.0% rather than 1.4% in 2017. But its forecasts for 2018, 2019 and 2020 were cut to 1.6%, 1.7% and 1.9% respectively, after already being revised down in the Autumn Statement, while the outlook for GDP growth in 2021 remains the same at 2%.

Similarly, although the OBR pulled its forecast for public borrowing this year down sharply from £68 billion to £52 billion, its borrowing projections up to 2021 were largely unchanged from November’s.

Despite stronger-than-expected economic growth and higher tax receipts, there were no major spending announcements as Hammond kept his powder dry in case of unexpected Brexit costs. His net “giveaway” of £1.7 billion in the 2017-18 fiscal year was modest, made up largely of higher social-care spending offset by higher taxes for the self-employed. The tight fiscal stance he is adopting makes a rate hike from the Bank of England look most unlikely.

Sterling rose initially on short-covering as the Chancellor began speaking but was then knocked back against the Dollar by a better-than-expected ADP jobs report and its bearish trend against other currencies also quickly resumed.

The barnstorming ADP report calculated that 298,000 jobs were created in the US private sector in February, smashing expectations of a 187,000 increase and by late in the European session GBPUSD was trading at 1.2148, down some 0.4% from 24 hours earlier. EURGBP was up 0.25% at 0.8683 but the Pound did manage a small gain against the Yen, with GBPJPY up 0.14% at 139.26.

Chart: GBPUSD 15-Minute Timeframe (Intraday, March 8 2017)

--- Written by Oliver Morrison, Analyst

To contact Oliver, email him at oliver.morrison@ig.com

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