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The British budget makes an epic mistake, and the £22 billion buffer is leaked in advance!

Wonderful introduction:

Let me worry about the endless thoughts, tossing and turning, looking at the moon. The full moon hangs high, scattering bright lights all over the ground. www.xmtraders.come to think of it, the bright moon will be ruthless, thousands of years of wind and frost will be gone, and passion will grow old easily. If you have love, you should grow old with the wind. Knowing that the moon is ruthless, why do you always place your love on the bright moon?

Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Market www.xmtraders.commentary]: The British budget made an epic mistake, and the £22 billion buffer was leaked in advance!". Hope this helps you! The original content is as follows:

Asian Market Trends

On Wednesday, the U.S. dollar index showed an inverted V trend. It was close to the 100 mark during the session, but then took a sharp turn. As of now, the U.S. dollar is quoted at 99.45.

Overview of Foreign Exchange Market Fundamentals

Russia stated that it has received the "latest version" of the U.S.'s peace plan for Ukraine. Peskov said it is too early to say that a peace agreement in Ukraine is about to be reached.

Foreign media: The United States hopes that Ukraine will reach a peace agreement first and then discuss security guarantees.

Federal Reserve Beige Book: Economic activity has remained basically unchanged in recent weeks, and consumer polarization has intensified.

The number of initial jobless claims in the United States for the week to November 22 was 216,000, lower than the expected 225,000 and the upwardly revised previous value of 222,000, a new low since the week of April 12, 2025.

The U.S. Treasury Department announced the October CPI alternative index value for inflation-protected Treasury bonds.

The United Kingdom announced its budget, leaving about 22 billion pounds in fiscal spare capacity, which is higher than market expectations; the British Office for Budget Responsibility released its economic and fiscal forecasts in advance due to technical reasons.

Traders have increased their bets on the extent of interest rate cuts by the Bank of England, with a cumulative rate cut of 68 basis points expected by the end of 2026.

Canada reduces its steel tariff quota and imposes a 25% tariff on specific steel derivatives.

Canadian Prime Minister Carney: With the United StatesThe trade negotiations have not yet restarted and will meet with Trump next Tuesday.

Summary of institutional views

Mitsubishi UFJ: The forecast range for the United States and Japan has moved up to...

As more reports and speculation about stimulus packages emerge, market concerns about the fiscal outlook have increased this week. Japanese government bond yields have risen significantly, especially at the ultra-long-term end, and the selling pressure on the yen has also continued simultaneously. Investors' expectations of the government's opposition to interest rate increases have also consolidated the selling pressure on the yen. Even if the United States and Japan broke through important barriers, the Japanese authorities did not intensify their verbal intervention, which accelerated the weakening trend of the yen. However, judging from previous statements, the monetary and fiscal authorities have shown greater vigilance.

The Japanese yen’s foreign exchange intervention needs to be coordinated with the United States. After the Finance Ministers’ meeting in October, Bessent mentioned that the Japanese government’s willingness to give the Bank of Japan sufficient policy space will be the key to fixing inflation expectations and avoiding excessive exchange rate fluctuations. However, the Bank of Japan has recently lacked www.xmtraders.communication opportunities to pave the way for a policy shift, so the adjustment of market expectations may take longer, and the selling pressure on the yen may be difficult to reverse for the time being. We raised the upper end of our USD/JPY forecast range late last month to 158, around the year's high, but that level no longer looks like a solid upper limit. If market conditions continue, the exchange rate may move towards the next key psychological level of 160.

In addition, as the Federal Reserve enters a silent period, officials will lose the opportunity to www.xmtraders.communicate publicly. Under such circumstances, U.S. stocks will show higher instability. We believe the market may turn to risk aversion due to uncertainty about the Fed's December meeting, in which case the selling pressure on the yen may temporarily pause.

TS Lombard: The jump in the domestic labor participation rate has statistical flaws, and the Federal Reserve is facing the most severe supply-side shock since the 1970s

The weakness of the U.S. job market has been confirmed by the delayed September employment report. The current six-month rate of change in core non-farm payroll employment has dropped to -0.08%, indicating that the economy has slipped to the brink of stagnation. Historical experience shows that once the job market begins to decline, it often falls into a negative cycle that accelerates deterioration. However, the Household Survey, which provides unemployment data, is questionable. Data shows that while the number of foreign-born workers is declining, the number of native-born workers is increasing — and the native-born labor force participation rate has jumped. This contradictory phenomenon may stem from statistical flaws in the survey method: it is based on a fixed population estimation model. When the foreign-born population decreases, the model automatically assumes that the native population increases accordingly. This mechanism may conceal the true supply-side shrinkage.

Even if the local labor force does grow, its sustainability is rather limited. Although the local labor force participation rate is still lower than the pre-epidemic level, this is mainly due to structural factors, especially the wave of early retirement. There is a high probability that this part of the labor force will not return to the market. Once the growth of the local labor force reaches its peak, the supply-side contradiction in the United States will further intensify.

The United States does not have rich experience in dealing with "supply-side contraction". Over the past 30 years, business cycles have been dominated by demandSeek volatility to dominate, rather than drastic changes on the supply side. In the past, when employment fell, the Fed was confident that inflation would follow and could quickly implement monetary easing to reverse the situation. Except during the epidemic, policymakers have not really faced a serious supply shock since at least the 1970s. It is not difficult to understand why some Fed members advocate a cautious stance.

The real question is whether the Fed can maintain this position in 2026, given Trump's strong desire to control policy. Even if the Fed maintains its independence, Trump will seek other ways to revive the economy. He urgently needs to improve the situation of the bottom groups of the "K-shaped economy". Therefore, this means that the demand side is likely to heat up again in 2026. If the supply-side contraction has not eased by then, the only result will be a return of inflation.

Analyst Jonathan Guilford: Returning the $90 billion in tariff revenue collected by Trump will trigger a "1929-style" financial disaster

For the White House, tariffs are both the source of all problems in life and the solution to all problems. Facing people’s www.xmtraders.complaints about the cost of living, U.S. President Trump’s latest “quick fix” is to cut food tariffs and envision issuing $2,000 checks to the people from the more than $200 billion in tariff revenue collected so far. Faced with people's www.xmtraders.complaints about the rising cost of living, President Trump's latest response plan is to cut food tariffs and plan to issue checks of $2,000 per person to the people from the more than $200 billion in tariff revenue that has been collected. However, this proposal faces a triple dilemma: 1. Republicans in Congress are opposed to this, and they originally expected to use the tariff revenue to reduce the fiscal deficit. 2. The Supreme Court is hearing a case on the legality of the president's unilateral tariff increase. Judging from customs data, about $90 billion in funds collected during Trump's trade war may need to be returned if the justices overturn the so-called "reciprocal tariffs." The attorney general warned that being forced to refund the money and lose future expropriation rights would trigger a "1929-style" financial disaster. The justices also expressed doubts about how such a massive refund mechanism could be structured.

Congressional Republicans, meanwhile, are locked in internal disagreements over the use of the funds. According to polls, Trump, who is facing increasingly severe approval ratings, once conceived the idea of issuing "tax rebate" checks without consulting Congress at all. Increasingly hawkish lawmakers have resisted.

This kind of boycott does have a reasonable basis. The U.S. fiscal system is supported only by the two fragile reeds of legislative safeguards and tariffs, which at least partially conceal the massive tax cuts and sustainedContinue to create holes caused by profligate spending. The Yale Budget Lab calculates that sending a one-time $2,000 payment to individuals with an income cap of $100,000 would cost $450 billion, which is twice the expected tariff revenue in 2026. If it is forcibly issued through a presidential executive order, it will instantly sever the only remaining link to maintaining a balanced budget.

Analyst Michael S. Derby: Tightening liquidity forced the Federal Reserve to stop shrinking its balance sheet in December, and liquidity "difficulties" are approaching at the end of the year

U.S. Treasury Secretary Bessent said on Tuesday that the Federal Reserve's current interest rate management system is facing difficulties and urgently needs to be simplified. He pointed out that the Federal Reserve has brought the market into a new mechanism, the so-called "adequate reserve mechanism." But at present, the mechanism seems to be showing signs of weakness as to whether reserves are truly "adequate." However, the finance minister did not explain specifically what he meant by "showing weakness".

The Federal Reserve has faced and continues to face severe money market conditions, which is closely related to the way it manages its balance sheet of up to $6.56 trillion and the level of liquidity in the financial system. At the last policy meeting, Fed officials announced that they would stop shrinking their balance sheet in December. The move www.xmtraders.comes as liquidity in financial markets tightens ahead of its policy meeting in late October, greatly increasing the difficulty of controlling the federal funds rate, the Fed's main tool to achieve its inflation and employment goals. Increased market volatility has forced eligible financial institutions to borrow large amounts of cash from the Federal Reserve through the Standing Repo Facility (SRF), a facility designed to cap short-term interest rates. At the same time, the Fed's reverse repurchase facility, which sets a floor on money market interest rates, has also seen intermittent large cash inflows.

As the end of the year approaches, the Fed may face a difficult situation in money markets, as this period is typically a period of large fluctuations in money market liquidity levels.

Bill Nelson, chief economist at the Bank Policy Research Institute, pointed out that the settlement of large Treasury bonds on Friday and Monday will put pressure on money market liquidity. He previously suggested that the Fed should announce market liquidity intervention to ensure that the system has enough cash to limit interest rate fluctuations.

At the end of December, as the end of the quarter and the end of the year, there may be greater market turmoil again. The year-end trading days over the years are usually accompanied by large-scale liquidity needs. The withdrawal of funds by some lenders and the scramble for cash by many parties often intensify the fluctuations in funds.

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The British budget makes an epic mistake, and the £22 billion buffer is leaked in advance!

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