Last week brought a welcome dose of clarity to Britain. Chancellor Rachel Reeves delivered her autumn budget to the House of Commons, in which she increased the fiscal buffer to $22 billion, while announcing tax increases.

Reeves’ Budget: Front-Loaded Spending, Back-Loaded Taxes

As I pointed out in previous posts last week, the problem with the Budget is that tax increases have been pushed back to the end of their Parliament (2029/30). Unless I’ve missed something, I don’t understand how this budget helps break up Britain’s finances. We have not only increased back-loaded taxes but also front-loaded spending, which will naturally increase government debt in the short term.

The markets reacted the way you’d expect. GBP held bids, gilts rallied, and yields took a dive. Let’s be clear, credibility remains a key issue. I think this budget had more to do with the bond market being on the side of the government, and the market reaction was more about relief than anything that stretched credibility. Of course, it wasn’t helped by the OBR, which reported that GDP is expected to grow by 1.5% this year (previously forecast 1.0%), but its projections were downgraded to 2029 in subsequent years.

In the sense that it leaves the BOE, the budget has done little to change the trajectory of the central bank in my view. In fact, markets are now all but priced in at 25-bp on December 18. I believe this was helped by the budget decision to reduce energy revenues, which could reduce inflationary pressures.

If you cast your mind back to the BOE rate announcement on November 7, the MPC voted 5-4 in favor of keeping the bank rate at 4.00%, with BoE Governor Andrew Bailey clearly leaning more dovish.

From what I see, short positioning is becoming ineffective. However, in the medium term, I expect the downside in front-end yields to weigh on demand for the pound, with traders continuing to buy dips in the cross.

RBNZ signals end up simplifying the cycle with a Hawkish cut

Additionally, the RBNZ update was also an interesting event last week. As expected, the central bank cut rates by 25-bp, bringing the OCR to 2.25% from 2.50%. Nonetheless, it was seen as a hawkish cut, with RBNZ essentially calling time on its mellow cycle.

Also, according to minutes of the rate statement, the central bank’s decision focused on whether to hold or cut by 25 bps, not a decision on whether to cut between 25 or 50 bps after market pricing before the announcement.

As I noted in a previous post, ‘the inflation picture, growth, and jobs market are upbeat – as well as the latest rate path – suggesting the easing cycle may be done and dusted after 325 bps of cuts since August last year’.

Week Ahead: The US Dollar and the Fed are in focus

The first full week of December is upon us.

Where did the year go?

We have relatively interesting dynamic game. On one side of the fence, markets are 80% confident the Fed will pull the trigger on December 10, with a target rate of 25 bps to 3.50% – 3.75%. However, on the other hand, there is ongoing speculation about who will succeed Jerome Powell as the Fed chair. US Treasury Secretary Scott Besant made the airwaves last week, announcing that US President Trump could choose a new chair before Christmas.

Candidates on the shortlist include Fed Governors Christopher Waller and Michelle Bowman, Kevin Hassett (NEC Director), former Fed Governor Kevin Warsh, and BlackRock’s head of fixed income, Larry Fink. There are reports of speculation that Hassett could be in line for the top spot, which would make sense since he shares similar hawkish views with Trump, which, again, raises thorny questions about Fed independence. This news sees a close across the curve, and south of the 200-day SMA.

Markets aren’t fans of political meddling and that can send investors into a panic — the worry is that the Fed may make more decisions based on political rather than economic ones. Hassett’s appointment would be widely seen as controversial and dovish — so the U.S. dollar and yields could trade lower — while Trump’s appointment of Waller or Bowman, who are both at the Fed, would likely have minimal market reaction.

With other major central banks apparently nearing the end of their easing cycles, and with a new Fed chair on the way – likely to be in line with Trump’s desire to cut rates – this creates a significant headwind for the US dollar in 2026. Does this mean I will now sell US dollars? No, personally, I prefer to wait for the data to validate this theory and trade from these events, although I know many traders successfully trade even with event risk!

Key US Data: ISM, ADP Payrolls, and PCE Delays in Focus

Monday began with November, which is expected to remain in contractionary territory, followed by November ADP private payrolls data on Wednesday. The November index will also be released on Wednesday, with Thursday’s focus being weekly for the week ending November 29. Friday brings the long-delayed September inflation numbers, pushed back by the government shutdown.

Traders will be watching closely this week for signs of a softening labor market, which would help seal the deal later this month, and potentially open the door to short opportunities on the US dollar. The ISM surveys will be particularly important, as the weekly unemployment data claims. Additionally, the focus will be on the PCE inflation print, with the YY expected to rise from 2.7% to 2.8% in August, and the YY core measure forecast to be unchanged at 2.9%. Naturally, an in-line or minimum expected outcome here will help stabilize expectations below the rate.