Wednesdays Budget might not have appealed to everyone but…

Could do better

It was not exactly an awful week for the pound but far from a great one. Sterling’s average decline of 0.7% against the other dozen most actively-traded currencies paints an unfairly bleak picture: much of that loss was the result of unusually strong showings by the NZ dollar, the Swedish krona and the South African rand. True, the pound did lose four fifths of a euro cent and two thirds of a Swiss cent but it also added four fifths of a US cent and was unchanged against the Japanese yen and the Australian dollar.

Compared with a month ago the pound is up by an average of 0.4%. Its 1.1% loss to the euro is offset by its 1.4% advantage over the US dollar.

Budget breather

Chancellor Philip Hammond’s Budget on Wednesday might not have appealed to everyone but, from the point of view of investors it was a success. Mr Hammond managed to avoid what they saw as unforced errors in the government’s last two Budgets. His performance was judged a success, in that it kept him and his boss out of the media’s firing line.

Taxing times in the Senate

The US administration is desperate to get some legislation through Congress before the end of the president’s first year in office. It is pinning its hopes on tax cuts, and the House of Representatives has already approved a bill. Mr Trump wants the Senate to do the same in time for him to sign it before Christmas. However, the Republicans’ majority in the Senate is wafer-thin and not all senators are in favour of the legislation that was passed by their colleagues in the House.

Investors have serious doubts about the tax bill being passed into law. Those doubts make them far less enthusiastic about the dollar than they were at the turn of the year.

The euro’s locomotive

Much of the euro’s success last week was the result of goings-on in Germany. On Thursday the purchasing managers’ index which measures the health of the manufacturing sector came in at a provisional 62.5, an all-time high. The following day IFO’s measure of business conditions (confidence) registered 117.5, also an all-time high.

Helping the euro along, it emerged at the weekend that Chancellor Angela Merkel’s Christian Democratic Union party might after all be able to form another “grand coalition” with its previous partner, the Social Democratic Party. The SDP had said, after September’s election, that it would not repeat the exercise. Now, with the apparent choice between a minority CDU government and a fresh election, the SDP could be ready to bite the bullet and do what it sees as its civic duty.