The big expected news this week was the Chancellor’s budget statement. In the end, there was no change to sterling after the announcement of a number of measures aimed at stimulating growth. The Office of Budget Responsibility upgraded their growth forecasts, but not significantly enough to move the pound, perhaps because both the projections and the government’s budget statement both came with the caveat that everything might change after a Brexit deal had been agreed.
There was a dip in sterling after a negative response to the budget in relation to the UK’s departure to the EU; the Institute for Fiscal Studies described Philip Hammond's pre-Brexit Budget as "a bit of a gamble". Lloyds Bank's survey of UK businesses found confidence falling across the board to its lowest level this year.
Standard & Poor's predicted that a no-deal Brexit would lead to recession. However, in an impressive turnaround, Wednesday brought good news – or at least, positive rumour – and the pound gained an average of 1% overnight after a number of stories appeared in the press. A survey by HSBC came up with results at odds with the Lloyds Bank study a day earlier: a majority of UK businesses are ready for Brexit and optimistic about trade prospects. Brexit minister Dominic Raab has suggested that a deal with the EU will be done within three weeks. And The Times reports that an arrangement has been made to allow UK financial companies to continue doing business with the EU after Britain's departure.
Ahead of the Bank of England Monetary Policy Committee announcement on interest rates, the pound was up 1.06% against the US dollar and 0.55% against the euro. Although there was no change on the interest rate, an indication that interest rates could raise faster than expected once the Brexit picture becomes clear gave the pound another boost and it had the biggest rise in a single day since August.
Local elections in the German state of Hessen saw chancellor Angela Merkel's CDU party lose more seats but this was expected and the euro didn’t move. However, there was a response to the announcement, however much it was anticipated, that Merkel will not seek re-election.
There was no good news from the numbers, which showed weak growth and poor confidence data across euroland but there was little response from the euro. Gross domestic product in the euro zone expanded by a provisional 0.2% in the third quarter, half the growth forecast by analysts. Of the five confidence measures tracked by the European Commission, four were lower and one - consumer confidence - was unchanged. Growth in Italy stagnated in Q3, pouring petrol on the incipient debt crisis there.
In France it was steady at 2.5% in October and for the euro zone as a whole it is expected to accelerate slightly from 2.1% to 2.2%. Consumer prices in the euro zone increased by a provisional 2.2% in the year to October. The higher inflation rate was in line with analysts' forecasts. Having softened ahead of the announcement the euro recovered most of the lost ground but there was no carry-through.
Even though the core inflation measure - excluding food and energy - ticked up to 1.1% investors were not persuaded that the numbers were fierce enough to affect European Central Bank policy. The euro was unchanged on the day against the US dollar and almost so against the yen and the Canadian dollar. The four of them competed for last place among the major currencies.
The sense in Washington was that the US administration is readying the stage for its next - and presumably final - tariff assault on Beijing but a comment by the president to his Fox friends during an interview later in the day somewhat complicated the picture. There seems little chance that Trump will shrink from playing his final card in the tariff poker game; the imposition of taxes on all Chinese goods that have not already been hit.
The president himself muddied the water later when he told an interviewer that America could get "a great deal" on trade even though China isn't yet ready for a deal. The US midterms take place next week and have the potential to change the political picture, but the US-China trade war will remain in the hands of the president regardless of the outcome.
The Canadian dollar had a good week and at one point it was up among the leaders, helped partly by Bank of Canada governor Stephen Poloz. He told the Ottawa Parliament that people should accustom themselves to higher interest rates, suggesting 3% as "the new norm". The Loonie was up by 0.6% against the pound, a step behind the US, Australian and NZ dollars and the South African rand which shared the lead.
A comment from president Trump that America could get "a great deal" on trade even though China isn't yet ready for a deal. The Australian dollar moved higher on the news, eventually adding a quarter of a cent against sterling. This wasn’t the only reason the Aussie had a good week; Australia has already reported that headline inflation slowed to 1.9% in the third quarter (7), in line with forecasts. Aussie strengthened by 0.5% against the US dollar. The Australian dollar received direct help from a trade surplus which was much wider than expected.
The Kiwi dollar also strengthened by 0.5% against the US dollar after news from elsewhere; in the case of New Zealand, it appeared to be partly influenced by hope of an end of the US-China trade war but also a side-effect of improved sentiment resulting from the Brexit news flow.