The Pound Sterling saw a sharp recovery following the UK Chancellor of the Exchequer Rachel Reeves unveiling a 40 billion pound tax rise to address public spending deficits inherited from the Conservatives. The major source of this tax increase comes from employer National Insurance contributions, which have been raised to 15% from 13.8%. The government also increased taxes on inheritance wealth, private jet flights, and duties on items like air passengers, alcohol, and tobacco. The increased tax revenue will be directed towards funding areas such as the National Health Sector (NHS), fuel duty freeze, affordable housing, Electric Vehicles (EV) industry, and green hydrogen projects.
The decision to raise taxes and increase spending has led to a positive sentiment for the British Pound. However, an upward revision in the inflation target by the Office for Business Responsibility (OBR) could indicate persistent price pressures. This development may lead traders to reassess their expectations for future Bank of England (BoE) policy actions. The BoE is expected to cut interest rates by 25 basis points at the upcoming policy meeting, marking the second rate cut of the year. This move could bring key borrowing rates down to 4.75%.
The Pound Sterling showed strength in the market against major currencies, including the US Dollar. The GBP/USD pair saw a rise in intraday high near 1.3030 following the release of positive US macroeconomic data. While the US ADP Employment Change data for October exceeded expectations, the slower Q3 Gross Domestic Product (GDP) growth in the US contributed to the fall in the US Dollar. Investors will now closely watch the US Nonfarm Payrolls (NFP) data for further insight into potential Federal Reserve (Fed) interest rate decisions.
In terms of technical analysis, the Pound Sterling returned above the key level of 1.3000 against the US Dollar in North American trading hours. The GBP/USD pair is currently within a Rising Channel chart formation, holding near the 50-day Exponential Moving Average (EMA) around 1.3070. The 14-day Relative Strength Index (RSI) remains above 40.00, indicating a potential for further bullish momentum. Major support for Pound Sterling is expected near the 200-day EMA around 1.2845, while resistance lies near the 20-day EMA at 1.3060.
The Autumn Forecast Statement is a key economic indicator released by the HM Treasury, providing updated economic forecasts and a preview of the government’s budget for the upcoming year. This statement includes details on expected spending and income levels, borrowing levels, financial objectives, and comments on independent economic forecasts prepared by the OBR. The Autumn Forecast Statement plays a crucial role in shaping market expectations and influencing currency movements based on economic policies and projections.
