The UK Office for Budget Responsibility (OBR) has released its fiscal outlook and forecasts earlier than expected, ahead of the government’s budget statement. This unprecedented early publication included key budget details and caused sterling to weaken initially. The OBR attributed the premature release to a “technical error.”
The fiscal forecast indicates that Chancellor Rachel Reeves’ budget will more than double the fiscal headroom from March, increasing it to around £22 billion. This improvement will largely come from expected tax rises, although government spending is also set to increase significantly.
Market reactions to the OBR’s early forecast were mixed and volatile. GBP/USD initially rose from 1.3155 to 1.3200 but then dropped back to 1.3125 as traders absorbed the news. Sterling later recovered to 1.3180. Political uncertainties surrounding whether this will be Reeves’ final budget continue to loom over the market.
UK 10-year gilt yields also fluctuated. They fell initially from 4.49% to 4.43%, then reversed direction and rose back to 4.49%, even hitting a high of 4.54%. Expect heightened volatility in UK government bonds and sterling in the coming days as the market digests these developments.
Elsewhere, the US dollar showed a mixed performance, weakening against the New Zealand and Australian dollars but remaining largely steady against other major currencies. USD/JPY gained 0.3% to 156.50 as the Japanese yen struggled amid Prime Minister Takaichi’s fiscal stimulus plans, which she defended as not being reckless spending.
In the antipodean currencies, AUD/USD rose 0.4% to 0.6495, buoyed by stronger-than-expected Australian monthly CPI data and holding near important expiry levels around 0.6500. NZD/USD surged 0.9% to 0.5673 after the Reserve Bank of New Zealand appeared to have concluded its rate-cutting cycle. The pair approached 0.5700 but faced resistance near mid-November highs.
European stock markets held modest gains, while US stock futures were slightly higher, reflecting broad optimism. Gold prices increased by 0.7%, reaching $4,158.37 after touching an intraday high of $4,173, although the metal remains within a recent consolidation pattern.
Other market updates include US MBA mortgage applications for the week ending 21 November rising slightly by 0.2%, compared to a previous fall of 5.2%, and Swiss investor sentiment improving to 12.2 in November from -7.7 prior. China has also issued a new plan aimed at stimulating consumer spending.
In commodity markets, WTI crude oil fell 0.3% to $57.79, while Bitcoin decreased by 0.4% to $86,650. US 10-year Treasury yields edged higher by 0.6 basis points to 4.007%.
Overall, forex traders should prepare for continued market volatility as the UK budget situation unfolds, while monitoring key currency pairs and global economic indicators influencing sentiment and price action.
Original Source: Justin Low of investinglive.com
