Chancellor Philip Hammond will be facing a difficult challenge presenting the budget tomorrow, as data released by the Office for National Statistics (ONS) showed that the UK’s budget deficit unexpectedly increased in October by half a million pounds on an annualised basis. The reason for the increase in government borrowing was the repayment of government bonds which are linked to the British economy’s inflation.

Sir John Cunliffe, the Bank of England’s Deputy Governor and three more members of the bank’s board answered questions asked by lawmakers regarding monetary policy. In the US, President Donald Trump likened the tax reform to a Christmas present for taxpayers. Despite the President’s Christmas spirit, analysts suggest that the planned reform will increase taxes for half of the US taxpayers by 2027, instead of reducing them.

Pound Sterling – UK Markets

Today, the Pound inched lower against the US Dollar with the exchange rate set at $1.32. Sterling retained its value against the Euro with the exchange rate set at €1.12. The ONS released data regarding the UK’s public finances for October.

The ONS report showed that the UK budget deficit increased by £0.5bn in October, reaching £8bn in total. City analysts were expecting that the total deficit would come in at £7.1bn. Although government borrowing increased in the last month, total public-sector borrowing was 9.6% less in 2017 when compared to the previous year. Philip Hammond is expected to present the budget tomorrow, which runs counter to the opinions of some Tories who have urged him to increase spending to deal with Brexit’s financial consequences. The unexpected budget gap widening in October will certainly pose a few challenging obstacles to the Chancellor.

Four members of the BoE’s board testified to the Treasury Select Committee of the UK Parliament. UK lawmakers had the opportunity to question them regarding the recent interest rate hike, inflation and other economy issues. Sir John Cunliffe, the BoE’s Deputy Governor, said that he expects inflation to peak in the last quarter of this year, adding that, in his opinion, only clear evidence of wage growth could lead to further tightening the BoE’s monetary policy. However, Gertjan Vlieghe noted that the central bank can’t wait for all signs to line up in order to proceed in a rate hike because it might be too late.

US Dollar – US Markets

The US Dollar fell against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY) lost ground coming in at 93.98. The Thanksgiving holiday on Thursday will put on hold the talks on tax reform for a while, but Republican senators aim at passing the bill right after that.

President Donald Trump said, before a Cabinet meeting, that he will deliver the tax overhaul by Christmas. “We are going to give the American people a huge tax cut for Christmas—hopefully that will be a great, big, beautiful Christmas present,” noted Trump. Treasury Secretary Steven Mnuchin told CNBC that he also expects the bill to be sent to the President just before the end of December.

Despite Donald Trump’s Christmas mood regarding the tax reform, the Tax Policy Center, which is a non-partisan tax analysis group, published a report in which it said that the Senate’s planned bill will impose heavier taxes on half of the US taxpayers by 2027. The report warned that people with low wages would be getting smaller tax breaks than higher-income citizens.

Euro – European Markets

The Euro inched higher against the US Dollar with the exchange rate set at $1.17. There weren’t any significant economic data releases from the continent today with the single market currency recovering losses it suffered after the German coalition government talks collapsed.

The head of the ECB, Mario Draghi, answered questions from members of the European Parliament (EP). The Italian banker said that the applied QE programme can be very flexible and noted that “economic expansion remains solid and broad-based across countries and sectors in the Euro-area.” Draghi added that business investment remains strong and that corporate profits are improving.

The ECB’s president, in one of his remarks, stressed that inflation hasn’t shown yet convincing signs of an upward trend. Francois Villeroy, the head of the French central bank, told the Dutch newspaper De Telegraaf that the ECB took a decisive step toward ending the QE. Villeroy also warned that the Euro-bloc’s economy doesn’t have the necessary time to wait for the French economic reforms to be implemented.

Other Currencies – Highlights

Sterling fell against the Australian Dollar, trading at 1.74 AUD. The Reserve Bank of Australia (RBA) minutes in November showed that the board is concerned about weak wage growth in the economy. The RBA’s board also acknowledged that retail sales have been weak. The central bank’s executives noted that house credit growth remains faster than household income growth, adding that actions should be taken to reduce risks.

The Pound lost ground against the New Zealand Dollar, trading at 1.94 NZD. An ASB survey showed that household investors grew more cautious in the third quarter of the year. However, the level of confidence still remains high and well above last year’s reading. The survey showed that the majority’s opinions on recent events and trends are “fairly uninformed.”

Sterling remained stable against the Swiss Franc, trading at 1.31 CHF. An ING report commented that industrial production shows some signs of life and that the market could re-assess the third quarter’s GDP reading which is going to be announced in the last day of November.