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Hammond delivers Sterling fillip

Hammond delivers Sterling fillip

Chancellor Philip Hammond delivered a spending boost targeted at improving the UK’s chronic productivity deficit in his inaugural Autumn Statement yesterday. Overall the markets responded positively to business friendly incentives; investment in roads and rail, internet infrastructure, research and development and housing. Sterling rallied against the Euro, peaking at 1.1812, and versus the US Dollar the UK currency reached 1.2465.

The 2016 UK GDP growth forecast edged slightly higher, but in 2017 the forecast slumped to 1.4% from 2.2% previously. GDP forecasts for the next five years have been slashed by 2.4%. Weaker growth put upward pressure on budget deficit forecasts with an expected deficit of GBP 68.2bn for 2016, up from the GBP 55.5bn previously predicted. The deficit for the next five years is expected to be GBP 120Bn higher than forecast in March. The Office for Budget Responsibility (OBR) estimates that the new “budget” will give the Chancellor leeway of less than 1.2 percent of GDP for the deficit.

In the US, the Federal Reserve minutes from November’s meeting stated that members generally considered that the case for a rate increase had continued to strengthen and some were concerned that credibility could be damaged if rates were not increased soon. A minority of members talked about low inflation, but the majority view continues to suggest strongly that rates will be increased in December.

Amongst yesterday’s slew of US data, Jobless Claims increased to 251,000 from 233,000, suggesting that the labour market remains robust. New Home Sales data was weaker than expected but the PMI manufacturing index hit a 13-month high. US Durable Goods Orders data was stronger than expected with a headline 4.8% October gain. This was supported by a strong boost from aircraft orders, while the underlying increase of 1.0% was also higher than expected. U.S. equities and Dollar bulls are celebrating new highs during the Thanksgiving holiday break.

The Euro drifted higher against all but Sterling following reports that the European Central Bank (ECB) was looking to lend out more bonds in order to boost collateral and lessen the risks of a freeze in the bond market. However the gains faded quickly. Eurozone PMI data beat consensus but failed to offer significant support to the Euro as Dollar strength continued to dominate.

Data to watch: US Market shut for Thanksgiving. 7am German Q3 GDP, QoQ & YoY. 9am Ger Nov IFO Business Climate, Current Assessment & Expectations. 12pm German IFO Consumer Confidence.

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