GBP / USD Still Supported Above 1.3950 Following UK Budget Announcement

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  • GBP / USD continues to support above 1.3950 following the UK Finance Minister Sunak’s budget presentation.
  • Markets seem to think that the budget improves the economic outlook and money markets have seen a readjustment of interest rate expectations from the Bank of England.

The pair GBP/USD it fell to session lows at 1.3925 only to then bounce back into positive territory at 1.3985. The pair is still a few pips away from its European session highs just above 1.4000, a level bulls are likely to target, but has held up well, with the GBP one of the best performing G10 currencies in the market. day.

The UK Finance Minister Rishi Sunak’s budget announcement appears to have been modestly exceeded and this appears to be supporting the British pound, which is currently trading up about 0.2% against its USD counterpart. Money markets are now pricing 10 basis points at Bank of England interest rates by the end of 2022; The reactivation of prices from market expectations for Bank of England policy also appears to offer some support to the British pound.

UK Budget: Summary

The main focus for GBP traders on Wednesday was the presentation of the UK’s first budget in over a year (they had been repeatedly postponed due to disruption caused by the pandemic). As expected, UK Chancellor of the Exchequer Rishi Sunak announced a large package of support measures designed to 1) extend the government life support offered to sectors currently forced by the shutdown and 2) boost recovery. post-pandemic.

As for the details, starting with immediate financial support; the leave was extended until the end of September as expected, there are two new grants for the self-employed, the increase of 20 pounds per week to universal credit has been extended six months, the national living wage is increased to 8.91 pounds from April, 100% business rate holiday was extended until the end of June and then a 66% discount until the end of the year, the 5% hospitality VAT rate was extended until the end of September after which it will be 12.5% Until the end of the year and finally the stamp duty reduction has been extended until the end of June and the zero rate band will be left at £ 250,000 until the end of September.

To boost post-Covid-19 recovery, the government announced; a new Recovery Loan Scheme to replace the Recovery Loan Scheme and the Coronavirus Business Disruption Loan Scheme, a 5B fund to “restart grants” to start paying in April, creating a new infrastructure bank in the UK with an initial capitalization of £ 12B, a new ‘super deduction of up to 130% for companies investing in the UK, an additional £ 2.4bn for the delegated government of Wales, Scotland and Northern Ireland, government guarantees for home loans of up to 95% of a property’s value, and finally £ 1 billion for new town redevelopment deals.

That’s a lot of financial support and reflects the fact that Sunak intends to prioritize economic recovery for the rest of the year. According to the OBR, short-term spending amounts to about £ 44bn or around 2% of the UK’s annual GDP and as a result, the OBR projects that the UK’s annual deficit appears to remain above 10% for the 2021/2022 tax. year.

In order to fill the gap in the budget, the latest budget of the UK Chancellor of the Exchequer, Sunak, is already taking steps in this direction; Thresholds for income tax, lifetime pension allowance and inheritance tax allowance have been frozen until 2026, while corporate tax will increase from its current level of 19% to 25% in 2023.

Everything seems to conclude that the updated stance of UK fiscal policy should minimize how much unemployment increases when leave ends. The OBR expects the unemployment rate to reach highs of around 6.5% later this year, below the Bank of England’s forecast for the unemployment rate at 7.5%, although they may be changing this forecast in the wake of the recent budget announcement. .

Early blockage relief?

Elsewhere, the British press has spoken that the UK lockdown could be eased earlier than expected, given that Covid-19 deaths are falling faster than SAGE had previously predicted (through February 22). Previous estimates from SAGE had expected the daily death toll to remain above 200 a day through mid-March. However, recent data has shown that the daily death toll fell below this figure in late February.


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