The UK economy is still one of the fastest growing G7 nations, and Philip Hammond the Chancellor to the exchequer is confident that his planned tax reforms will keep the economy afloat during the Brexit transition. Furthermore, Hammond has promised to improve social care by allocating extra funds to help those in most need, as well as helping firms deal with rising business rates.
Markets found support in the Chancellor’s proactive stance to the UK’s withdrawal from the European Union, and has echoed comments from the Bank of England regarding higher growth forecasts, predicting 2% growth for 2017 against a previous forecast of 1.4%.
Markets have been awaiting the Spring Budget with great uncertainty following reports that an additional €60bn fund will be assigned to the mammoth task of exiting the EU. The general view has been met with positivity and the added reassurance that the UK economy remains afloat has resulted in Sterling fighting back its losses as seen at the beginning of the trading session.
Will the Pound extend its momentum?
It’s of my personal opinion that the Pound will sit range bound at 1.15-1.16 for some time, whilst markets can rejoice in the confidence expressed by the Chancellor, there still remains an err of caution as we approach the formal deadline of Article 50 in the coming weeks.
The Pound may continue to struggle against its US Dollar counterpart, primarily due to market anticipation of another US rate hike in March. Friday may hold the key to the FED’s decision, with both unemployment and Non-farm payroll figures ready to test the US Dollar bulls.
Strong figures on Friday will only help to strengthen the FED’s hand and as such, further GBP/USD movements are likely as the odds of a hike grow closer to certainty.
The Pound will remain in vulnerable territory for the time being, with little room for a break above 1.18 until the UK’s hand in formal Brexit negotiations are known. However, given the huge unknowns around the French elections anything is entirely possible and Le Pen’s victory in the first round of the elections may flare up market uncertainty as it has as of recent.