GBP seesaws on the UK budget, MXN craters as international airport construction cancellation looms

Summary:

• UK Chancellor of Exchequer presents budget

• UK growth forecast upgraded, digital services tax announced

• Mexican peso craters on airport construction cancellation news

More volatility could be spotted on the FX market in the afternoon, especially on the GBP and MXN. The first one seesawed during presentation of the UK budget while the latter cratered on news of huge infrastructure project being cancelled.

GBPUSD jumped after Hammond presented upgraded growth forecasts but erased this gain later on. Source: xStation5

The British pound has seen some hectic moves in the morning and early afternoon today. However, the main market event today concerning the UK currency was scheduled at 3:30 GMT and it was the presentation of the UK budget by Philip Hammond, the UK Chancellor of the Exchequer. Key highlights from his speech:

• The period of austerity and post-crisis spending cuts is coming to an end

• 2019 GDP growth forecast upgraded to 1.6% (1.3% previously)

• Increased spending on defense, roads and police

• 2 billion GDP to be spent on Brexit in 2019-2020

• 2019-2020 deficit forecast lowered to 31.8 billion GBP (previously 33.9 billion GBP)

• Introduction of digital services tax on revenue generated in the UK

• Increase in the minimum wage in April

Apart from that, Hammond proposed an array of changes to current tax rates and duties on various products. GBPUSD moved higher at the beginning of a speech but erased this gain later on and broke to new session low. However, while there are some upbeat remarks what is critical concerning the budget is whether Parliament will accept it or not. Decision to be made later today.

USDMXN surged today on the news that Mexicans backed cancelling of the international airport construction in a referendum. The referendum was non-binding but the President-elect already announced the construction will be cancelled. Source: xStation5

When it comes to the Mexican peso it is hard not to see a huge increase on the USDMXN market. The main reason behind this is cancellation of building process of the international airport worth $13 billion. The investment was announced by the former President Enrique Pena Nieto in 2014. However, the President-elect Andres Manuel Lopez Obrador (AMLO) said during the elections campaign that it is a waste of money. In turn his party decided to launch a ballot asking citizens whether to scrap the project or not. Almost 70% of 1.07 million participants voted in favor of dropping the project. AMLO already said that the construction will be cancelled having the results of a ballot in mind. There would not be anything unusual in this if the project was not completed in over 30% already and bonds already being issued to finance it. According to quick estimates made by BBVA the cancellation of the process at this point could cost the country as much as $10.5 billion.