GBP/USD: Trading the UK budget – two opinions

The pound recovered on hopes for some kind of a breakthrough in the Brexit talks, namely a caving in from the British government on the divorce bill. Yet there are other events coming up. Here are two opinions about trading the UK Autumn forecast.

Here is their view, courtesy of eFXnews:

GBP/USD: (1.2 -OppView*) Trading UK Budget: Eye Upside Into 1.34 – ING

ING FX Strategy Research discusses GBP outlook ahead of the release of the 2018 Budget on Wednesday, and thinks that GBP risk is skewed to the upside.

“The stage is set for Chancellor Hammond to showcase his vision of a post-Brexit economy in this week’s Budget (Wed) and despite being hamstrung by a weaker set of OBR fiscal forecasts, it’s clear that the global investment community are in dire need of some Churchillian-like words of inspiration over the future of Britain.

…GBP investors may need to look beyond the minutiae of policy detail in the Budget this week and focus on the degree of economic optimism struck by the Chancellor

We also see upside risks to the 3Q UK GDP second reading (Thu). We like GBP/USD upside and eye 1.3400 on a well-received Budget,” ING argues.

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GBP/USD: (1.1) Trading UK Budget : Asymmetric Downside Risk To GBP – Barclays

Barclays FX Strategy Research discusses GBP outlook ahead of the release of the 2018 Budget on Wednesday, and thinks that GBP risk is skewed to the downside.

“The OBR is likely to lower its GDP growth forecasts based on an assumption of slower productivity growth over the next four years. The gap between OBR and BoE productivity growth assumptions has been significant for some time, with average growth rates of 1.60% and 1.25% y/y, respectively, between 2018 and 2020. While it is possible that the OBR will persist with this optimistic view, we do not think that this augurs for GBP appreciation.

Output per UK worker continues to disappoint and suggests that a downward revision is appropriate. The associated lower income over the forecast period should result in higher government net borrowing forecasts between 2018 and 2022 but Chancellor Hammond has promised to continue targeting a structural fiscal deficit below 2% in the 2020/21 fiscal year even if economic circumstances change (we expect a forecast of 1.5%),” Barclays argues.

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