UK Deficit to Increase by £20bn
Sterling strengthened against both the US Dollar and the Euro, despite a report by the Institute for Fiscal Studies (IFS) which said that Chancellor Philip Hammond will face a £20bn black hole in the government’s budget by the 2021-2022 fiscal year. According to IFS, the reason for the extra deficit will be the low productivity growth. On Thursday, the Monetary Policy Committee (MPC) of the Bank of England (BoE) will meet to decide on interest rates.
In Europe, economic confidence in October hit a seventeen-year high. On Wednesday, Eurostat will publish data regarding the GDP, inflation and unemployment rate in the Euro-bloc. On the same day, in the US, the Fed’s board will also meet to decide on its benchmark interest rate.
Pound Sterling – UK Markets
Today, the Pound advanced against the US Dollar with the exchange rate set at $1.31. Sterling also strengthened against the Euro with the exchange rate set at €1.13. The major news for the Pound and the British economy in general, are expected to come from Thursday’s BoE meeting, during which the Monetary Policy Committee will decide if it will hike interest rates.
Data released from the Bank of England this morning showed that the number of approved mortgages for house purchases hit a three-month low in September, but came a bit above the analysts’ forecast. The report also said that net consumer lending rose by £1.6bn, slightly above market expectations. The BoE survey noted that credit card borrowing rose by 9.3%, on an annualised basis, over the last month, which is a strong indication that Britons increasingly use their cards to cover everyday needs.
The IFS published a report which stressed that the UK’s budget deficit is on track to be £36bn by the 2021-2022 fiscal year, double than it was forecast earlier in the year. Paul Johnson, head economist at IFS, said that “it is hard to see how the Chancellor can both maintain the credibility of his fiscal targets and respond effectively to the growing demands of spending.”
US Dollar – US Markets
The US Dollar fell against the Euro with the exchange rate set just under the €0.86 mark. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, declined, coming in at 94.85.
The Wall Street Journal (WSJ) reported that Donald Trump is likely to select Fed Governor Jerome Powell as Janet Yellen’s successor in the leadership of the US Federal Reserve. However, the report was on the safe side, saying that the President could still change his mind, since he hasn’t made a formal decision yet. Yellen’s term is finishing in next February and she is also a nominee. It should be noted that the Senate is the one that gives the final approval to the President’s nominee.
Republicans are not expected to reveal the tax reform bill until Wednesday, but they are already under fire from various interest groups. One of those, the National Association of Home Builders (NAHB), which is a housing industry trade group, vowed to defeat it over a change regarding the use of home mortgage deductions. Republican senators said that the tax plan is entering a new phase as lobbyists put pressure on law makers to protect their tax breaks.
Euro – European Markets
The Euro strengthened against the US Dollar with the exchange rate set at $1.16. Tuesday is the week’s most important day as data regarding Eurozone’s GDP, inflation and unemployment rate will be published.
In the afternoon, the Statistisches Bundesamt Deutschland will release the German inflation data for October. Economists expect that inflation, on an annualised basis, will drop to 1.7% from 1.8% in September. German retail sales in September jumped by 4.1%, on a year-to-year basis, surpassing market’s expectations for an increase by 3.0%. On a monthly basis, September’s retail sales rose by 0.5%, a bit less than the 0.7% anticipated reading.
A survey by Eurostat showed that economic confidence in the Eurozone hit, in October, its highest level since 2001. Figures showed that the economic sentiment in the Euro-bloc has been higher than the UK economic sentiment for the last three months in a row, marking the first time in the last five years. The survey’s results confirm that the Eurozone countries are back on the path of growth.
Other Currencies – Highlights
Sterling inched higher against the Australian Dollar, trading at 1.71 AUD. According to data by the Australian Institute of Petroleum, the average price of unleaded petrol jumped by nine cents last week, which is the largest increase in the last thirteen years. Craig James, chief economist at Commsec, said that higher petrol prices are not good news for Australian households. “Filling up the car with petrol is the biggest purchase for most Aussie households. The lift in petrol prices is something to watch,” he said.
The Pound climbed against the New Zealand Dollar, trading at 1.91 NZD. The new Finance Minister, Grant Robertson, said in an interview that the new government will continue to welcome foreign investment, if it’s targeted towards the productive parts of the economy, and not the housing market. Robertson noted that the mandate of the Reserve Bank of New Zealand (BNZ) will remain the same until a new governor is appointed in March 2018.
Sterling advanced against the Swiss Franc, trading at 1.31 CHF. The KOF Leading Indicator in October came in at 109.1, surpassing analysts’ expectations.