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Sterling treads water ahead of UK budget
[LONDON] Britain's pound trod water on Wednesday, with traders wary of taking on any large new positions on the currency ahead of a budget statement from the country's finance minister Philip Hammond.
Most analysts said the statement would be unlikely to have any great impact on sterling, as investors were already largely prepared for lower growth forecasts, and because the finance minister had little room for any kind of bold budget moves.
Mr Hammond, who is fighting for his political future as well as the fortunes of Britain's economy as it prepares to leave the European Union, is under fire from many Brexit supporters who say he is taking an overly cautious approach to the talks with Brussels.
But he is still expected to tread carefully, with measures to speed up house-building and improve Britain's weak productivity.
"The UK government has little room for manoeuvre when setting fiscal policy and so the details of the budget are unlikely to have a material impact on the pound," said MUFG currency strategist Lee Hardman.
"(But) if the budget is badly received, there will be intensified pressure on Theresa May - particularly from hard Brexit supporters - to appoint a new Chancellor. The pound would likely prove sensitive to any further signs of political instability," he added.
The pound edged up 0.1 per cent to US$1.3251 ahead of the 1230 GMT statement, staying within the narrow US$1.3190-US$1.3280 range in which it has traded all week.
Against the a stronger euro, the pound eased back 0.2 per cent to 88.78 pence.
"Sterling's still very cheap and still reacts more to good than to bad news as a result. Today may just bring confirmation that the Chancellor has very little room for fiscal handouts," said Societe Generale macro strategist Kit Juckes.
Away from the budget, traders were still closely watching developments around Brexit negotiations.
Britain's parliament is debating legislation which will enact Britain's exit from the EU in March 2019 and copy EU law into British law - described by officials as "one of the largest legislative projects ever undertaken in the UK".
Mrs May's government averted a rebellion in parliament on Tuesday over plans to ditch the EU's Charter of Fundamental Rights, promising to review its approach and make changes if needed.