This is how Philip Hammond’s budget speech has effected those trading forex

November 30 06:59 2017

After weeks of speculation, Chancellor Philip Hammond finally delivered his long-awaited autumn budget statement last week, focusing on hot button issues such as stamp duty, stagnant economic growth and concerns surrounding the flagship universal credit scheme.

While many were expecting the statement to adopt an optimistic and hopeful tone, however, Hammond actually delivered a sobering and surprising honest appraisal of the economy and its near-term growth portents.

So what are the key takeaways from Hammond’s autumn budget, and how it effect those trading on the forex market? Let’s take a look:

The speech and its key takeaways for investors
In simple terms, Hammond bucked the trend of budget speeches by offering an assessment of the UK economy and its growth rate. Despite opening with the assertion that the economy continued to create jobs, he acknowledged that it is struggling to generate opportunities for skilled employees deliver real wage growth.

Similarly, Hammond revealed that productivity levels remained ‘stubbornly flat’, suggesting that growth will remain below forecasts until 2021 at least. This will mean that, for the first time in a generation, the economy is set to grow below 2% for consecutive years.

This set the tone of the speech, although Hammond did at least make some proposals to ease the financial burden of first-time buyers in the UK. More specifically, he sought to rally MPs in a bid to scrap stamp duty for any house purchase of £300,000 or less, rather than simply reducing the amount that buyers were required to pay. This could save households up to 5% per purchase, which could go a long way in a climate where inflation is rising and real wages are continuing to stagnate.

Hammond was also forced to address criticism from Tory Eurosceptics, who have labelled him as negative and suggested that he remains too pessimistic about life outside of the EU. Incidentally, the Chancellor said that he had set aside a total of £3 billion for Brexit planning, a move which drew stringent criticism for those who want to see an end to austerity and renewed investment in public services throughout the UK.

How have forex traders responded to the budget?
The tangible sense of optimism that emerged in the wake of the budget announcement was reflected by the performance of the British pound (GBP) in the build-up to Hammond’s speech. In fact, the GBP enjoyed a moderate rise against the U.S. Dollar (USD), increasing by 0.4% to close at around $1.326 on the morning of the live statement. This was a toucher higher than the previous weeks’ best exchange rate of $1.325, suggesting that the GBP may be about to break out of a narrow trading range.

This offered hope to those trading forex, as the prospect of a stronger pound offers flexibility within the marketplace and would be indicative of a more robust economy.

Of, course the GBP was likely to appreciate if the Chancellor’s speech was met with enthusiasm, but its negative tone and honest assessment of the UK’s growth prospects actually caused a pronounced depreciation in the value of the pound. According to financial experts, the value of the GBP plummeted both during and immediately after the autumn statement, falling by 0.23% to €1.1261 against the Euro (EUR). The GBP/USD exchange rate also fell back to a familiar range, landing at $1.3224 at the close of trading.

While this will have come as a disappointment to some given the optimism that greeted Hammond’s speech, the liquid and derivative nature of the forex market offers hope to traders. After all, the statement offered a unique opportunity to leverage this development by hedging against the GBP, as it lost considerable ground against the EUR and the USD. This is something that would have particularly appealed to day traders, who could profit from the sharp devaluation of the pound throughout the day of Hammond’s budget announcement.

This is arguably a good lesson for all traders to heed at present, as the increasingly volatile nature of the geopolitical climate is causing huge fluctuations in the forex market. This is reflected by the subsequent rise of the GBP, which followed an announcement that the so-called divorce bill between the UK and the EU had been agreed in principle.

For as long as the value of the GBP continues to change so often and so markedly, a short-term trading strategy clearly offers traders the best chance of achieving success.

This is how Philip Hammond’s budget speech has effected those trading forex
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