LCG – Pound’s Tepid Reaction to Fiscal Phil’s Budget – By LCG Research team


Despite big promises of increased spending and tax cuts as of next year, the pound had a tepid response to the Chancellor’s Autumn Budget. The Chancellor kicked the show off with improved growth forecasts from the OBR. This was then followed by extra funding for NHS, defence, universal credit and the high street in Fiscal Phil’s most generous give away since 2010. As austerity was finally coming to an end, income tax personal allowance was raised, and a new digital service tax aimed at big tech will be introduced. In short, there was a lot to like. However, this was all available for the UK, on the condition that a Brexit deal was reached.

This Budget being dependent on a Brexit deal is what prevented investors from getting giddy at the prospect of more spending and the pound rallying. With no Brexit deal done and talks in deadlock, doubts exist as to whether the largest giveaway in 8 years will ever actually materialise. The pound ended the session lower versus the dollar.

Whilst sterling has started the session on the front foot on Tuesday, the UK economic calendar is light. This will leave investors fretting over the lack of Brexit developments and potentially prevent the pound from really taking off. On the downside GBP/USD remains uncomfortably close to $1.2776, the multi-month low reached last week. Meanwhile, a push above resistance at $1.2850 could see the pair extended gains back towards $1.2880.

More Trade Tariffs Coming?

Wall Street extended last week’s sell-off and Asian traders were edgy overnight following speculation of further trade tariff threats from Trump. President Trump reportedly threatened tariffs on all remaining Chinese imports by December should this next round of talks with China fail. This would be tariffs on approximately a further $250 billion.

Given the current fragility of market sentiment, this latest move will be a case of kicking the market whilst its down, damaging the prospects for a solid recovery and increasing the probability of the bears retaining control. The volatility index, or fear gauge as it is commonly referred to, spiked by 27.86 points to its highest level since October 11, also the second highest reading since the spike in volatility in February.

European markets are pointing to a broadly stronger start on the open. The FTSE is currently set to buck the trend, pointing to a marginal dip on the open as heavyweight oil majors could struggle on declining oil prices.

US Consumer Confidence to Dip from 18 Year High

The dollar continues to benefit from its safe-haven status, gaining over 0.2% versus a basket of currencies in the previous session. Safe haven demand continued to stoke demand for the dollar in early trade on Tuesday. Dollar traders will look towards US consumer confidence later in the day. Confidence is expected to dip slightly to 136 in October, down from 138.6 in September, an 18-year high.

Packed Eurozone Economic Calendar

The eurozone economic calendar is also packed with releases including eurozone and Italian GDP and German inflation and unemployment. The euro could see some volatility as it attempts to pick itself up from recent 7-week lows.

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Jasper delivers regular commentary, seminars and webinars on market news, trading analysis, strategy and psychology. He is regularly interviewed by BBC News, Bloomberg, CNBC and Sky News, and has featured in The Times, Guardian and Daily Telegraph. Jasper hosts a weekly charting analysis webinar. He is qualified as a Chartered Market Technician (CMT) with the Market Technician Association, and has a degree in Finance and Economics.