The Pound has fallen by -0.2% against the US Dollar today but may be able to recoup losses in the future, depending on how the incoming Spring Budget turns out.
As the only budget event of 2017 (Chancellor Philip Hammond previously abolished the Autumn Statement), the Spring Budget stands to outline Government economic policy leading into Brexit.
Given the high levels of uncertainty over the Article 50 trigger due around March 15th, as well as potentially acrimonious Brexit negotiations further ahead, the budget could end up being a constrained affair.
Hammond is expected to announce a hefty funding rise for social care, but also voice plans to raise taxes on the self-employed.
Torsten Bell, Resolution Foundation Director, has stated that counteracting rising inflation is a must;
‘The effect of a renewed pay squeeze would be broadly felt across the population. But in many ways the worst affected group might be those ‘ordinary working families’ on lower incomes who will face a double whammy of lower pay growth and benefit cuts’.
When it comes to allocating funds, Hammond has explicitly ruled out ‘spending sprees’ and also stated that higher-than-expected economic figures were not representative of having ‘money in the pot’.
This may equate to a fairly dry budgetary statement compared to previous Chancellors, which could leave the budget having a net neutral effect on Pound demand.
If Hammond announces more spending than expected, Sterling may appreciate, while a deepening of current austerity measures is liable to have the opposite effect.
US Dollar appreciation over Monday has mainly come from opinions about the Fed, which now has an over 86% chance of raising the US interest rate in March.
The Fed interest rate decision this month is due on March 15th and if a rate hike is implemented then the US Dollar is likely to rally strongly against the Pound.
While US jobs data is expected this week, it may not serve to sway the Fed from its course, given that forecasts are for positive levels of job growth regardless.
Recent Interbank GBP USD Exchange Rates
At the time of writing, the Pound US Dollar (GBP USD) exchange rate was trading at 1.22 and the US Dollar Pound (USD GBP) exchange rate was trading at 0.81.
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