British Pound Reverses Yesterday’s Gains Ahead of Hammond’s Statement

The British pound came under pressure on Tuesday as currency traders had an increased demand for shelter assets to reduce their exposure to sudden movements in the pound’s exchange rate.

The pound is expected to move violently ahead of the UK’s Autumn Statement that will be given tomorrow by Chancellor Philip Hammond. Investors will be keeping a close eye on the statement, which is expected to give more hints on the government’s spending plan following a promise made yesterday by British Prime Minister Theresa May to increase research and development spending by 2 billion British pounds per year.

May’s speech to the CBI conference on Monday contained hints of a possible Brexit deal that will be friendly to businesses. Investors believe she hinted that the government might implement a transitional period before quitting the single market zone to smooth the cliff effect that Brexit is expected to force the nation’s economy to face.

The pound sharply rose following her comments as traders felt more certain that a soft Brexit scenario is likely to happen. However, half of the British currency’s gains on Monday were erased today as investors anticipated the UK Autumn Statement that might confirm the introduction of a fiscal boost. Investors are wishing for an increased infrastructure spending, but tomorrow’s statement might disappoint their hopes as the UK’s public finances are expected to deteriorating following the Brexit referendum in June.

GBP/USD declined to 1.2438 as of 16:18 GMT after starting the day off at 1.2487. The pair touched 1.2511 at 01:39 GMT today, its highest level since November 15.

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