The UK Autumn Budget and the Pound in Focus

Earlier in the Day:

Key macroeconomic data released through the Asian session this morning was limited to Australia’s construction work done in the 3^rd quarter. The figures were impressive with construction work done surging by 15.7% in the 3^rd quarter, coming in well ahead of a forecasted 2.3% decline. The Aussie Dollar moved from $0.75872 to $0.75927 upon release of the data before retreating. While the number was impressive, the Aussie Dollar eased back from its immediate uptick, down 0.17% at $0.7565 at the time of writing. The reverse came as the markets attributed the surge in construction work to the inclusion of mining related work, which would have little to no impact on 3^rd quarter growth figures.

Elsewhere, the Yen was up 0.25% to ¥112.17 against the Dollar, with the gains coming in spite of Asian equity markets rallying through the session this morning, as the Dollar pulled back early in the day.

The Softer Dollar came in response to FED Chair Yellen’s speech early in the session, with the FED Chair raising concerns over inflation and the ability of the FED to navigate through any future financial crisis. Yellen said that persistently low inflation could leave the FED’s neutral funds rate significantly lower than historical levels, leaving the FED with little buffer to adjust in a slowing economic environment. The surprise was perhaps a shift in sentiment towards inflation, with the FED Chair having previously considered the softness through the year to have been transitory.

In the equity markets, the Hang Seng broke into 30,000 levels for the first time since before the global financial crisis, despite the index’s largest weighted stock, Tencent being in the red. The Nikkei closed out the day with a 0.52% gain, with the ASX200 up 0.38%, while the CSI300 coughed up intraday gains to be flat at the time of writing.

The gains come in response to Tuesday’s record runs in the NASDAQ, continued optimism in the global economy and positive earnings as WTI continued its march towards $60 per barrel, and not to mention hopes of tax reforms further boosting earnings in the quarters ahead.

The Day Ahead:

It’s another particularly quiet day ahead on the economic calendar for the Eurozone. With no material stats scheduled to be released though the European session, the EUR will remain in the hands of market sentiment towards Merkel’s political woes in Germany and the direction of the Dollar.

At the time of writing, the EUR was up 0.14% at $1.1754, finding support from Yellen’s inflation concerns raised earlier in the day. For now, the market panic over a political shift in German leadership and possible impact on the Eurozone has eased.

There may be more to come for the EUR, depending upon what comes next in Germany. Should the German Chancellor decide to step down, it would likely be considered a negative for the region over the near-term, particularly with the far right continuing to gain support throughout Europe, not just in Germany.

For the Pound, it’s another interesting day. The heavily anticipated autumn budget will be announced this afternoon and, with the Tory Party on the ropes, the Chancellor of the Exchequer is going to have to deliver a strong budget. When considering the UK’s fiscal deficit, his hands may be somewhat tied however, the question being whether it’s a bad budget or a dire one.

At the time of writing, the Pound was up 0.15% at $1.3259, the gains coming off the back of Dollar weakness than market sentiment towards today’s budget, which could weigh on the Pound this afternoon.

Across the Pond, the Dollar could recover from its losses ahead of the European open, with October’s durable goods orders, weekly jobless claims and finalized consumer sentiment figures scheduled for release. Barring a particularly dire initial jobless claims figure, we would expect the durable goods orders numbers to be the key driver from a data perspective. If forecasts are anything to go by, the Dollar will likely find some support, though whether it’s enough to pull the Dollar into positive territory remains to be seen.

While the softer Dollar has been attributed to FED Chair Yellen’s speech early in the Asian session, news over special counsel Robert Mueller’s investigation into the U.S election campaign continues to hit the wires. The latest being the investigation team’s interest in Jared Kushner and his meetings with foreign leaders before the swearing in of the U.S president. The theory is that Kushner would certainly not have acted alone, which would leave one question and that is whether the investigation team can tie U.S President Trump to Kushner’s moves at the time.

The Dollar Spot Index was down 0.13% at $93.827 at the time of writing, with the markets needing to keep an eye on Capitol Hill as well as the data through the U.S session today.