Philip Hammond used yesterday’s Spring Budget, his last before moving the event to the Autumn, to make a few tweaks to taxes but given the large Brexit shaped elephant in the room, it is understandable that the Chancellor decided to keep his powder dry. The independent OBR increased its forecast for 2017 to 2% (up from 1.4% in November) but cut its forecast for 2018-2020 from its November outlook. Stronger than expected growth since the EU Referendum means that the deficit should be lower than previously anticipated, targeting 2.6% of GDP
The focus now switches to Europe as the ECB holds a policy meeting today. With inflation increasing and the outlook improving, a number of German institutions, not least the Bundesbank, have been calling for tighter monetary policy but ahead of high-risk elections in France and Holland, it is unlikely that the ECB will adjust rates today. Of real interest however, will be Mario Draghi’s press conference where it is possible that the ECB President could adopt a more hawkish tone. The meeting takes place at 12:45 followed by the press conference at 13:30.
The euro is trading slightly higher this morning and should remain well supported into the press conference. The dollar too looks strong with the market attaching a 92% probability to a rate hike from the Federal Reserve next week. Sterling, is on a 10 day losing streak, recording lower highs and lower lows for 10 consecutive days and until the Brexit Bill passes through both Houses of Parliament, sentiment towards sterling will remain negative.