Pound Traders Await Direction From Hammond’s First Budget Update

  • Chancellor of the Exchequer makes Autumn Statement on Nov. 23
  • Could give ‘short-term support’ to the pound: Credit Suisse

Pound traders will finally get a glimpse into Britain’s economic future -- and the direction of sterling -- next week.

Sterling fell for a fifth day versus the dollar Friday, bringing a halt to a two-week rally. Chancellor of the Exchequer Philip Hammond will deliver his first budget update on Nov. 23, giving investors insight into his economic policies. Analysts forecast increased spending and fiscal stimulus, both of which may bolster the U.K. currency. While the economy has proved resilient since Britain voted in June to leave the European Union, growth is expected to slow in 2017.

Hammond’s fiscal statement on Nov. 23 “may provide some short-term support to the pound versus the euro,” said Bhaveer Shah, a London-based foreign-exchange strategist at Credit Suisse Group AG. Sterling may benefit if the speech “adds further support to already rising inflation expectations, or if the U.K. government signals a friendly stance for the U.K. property market and foreign investment.”

The pound fell 2.1 percent this week to $1.2327 as of 5 p.m. in London Friday. It dropped to a 31-year low of $1.1841 on Oct. 7, and is down about 17 percent versus the dollar since June 23, the day of the Brexit vote. Sterling gained 0.4 percent to 85.93 pence per euro.

Philip Hammond

Photographer: Jason Alden/Bloomberg

Hammond is expected to announce a moderate infrastructure spending package and set a longer-term fiscal framework to allow the government to react to changes in the economy, both of which could prove supportive for the pound, according to analysts.

While Hammond’s speech may give the U.K. currency a short-term boost, it won’t change the longer-term view, according to Credit Agricole SA.

“An Autumn Statement which highlights the fiscal support for the recovery from here will be seen as a positive sign,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole’s corporate- and investment-banking unit in London. “But it’s not going to be a trend reversal higher for the pound. Most clients we talk to remain uniformly bearish on the longer-term pound outlook, partly because they expect the data to deteriorate from here.”

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