Currency Pair of the Week : GBP/USD

Despite this month’s FOMC and BOE meetings now being behind us, GBP/USD remains of interest this week as the UK’s new tax cut and spending programs have created a surge in volatility.

The announcement of the mini-budget on Friday saw cable drop over 400 pips, with sell-off extending to start this week, taking the pair to a new all-time low. While GBP/USD did pare of the earlier losses, support is hard to find at this point, and the BOE is now under increasing pressure to respond.

Will the central bank try to hold out making any decisions until their next meeting in November, or will the British Pound’s free-fall spark an emergency intervention?

Check out this article for a deeper insight and key technical levels to keep an eye on:

Will the new budget from PM Liz Truss “break the economy” or will it help everyday citizens as she says it will?

What does breaking the economy/helping everyday citizens entail?

She’s made lots of tax cuts and is going to borrow lots of money so our national debt equals our GDP (£2.5 trillion) in order to boost our economy. Meanwhile interest rates are wooshing up, making it more difficult for the country to repay that debt. UK bond rates higher than Greece. We are a bit of a basket-case at the moment, but at least Boris is gone. I don’t mind Liz Truss too much.

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The intentions of the mini-budget are to help citizens by boosting the UK’s economy through tax cuts, investment incentives, and public spending.

However, the resulting surge in yields could have the opposite effect, while sell-off in the GBP may increase the country’s inflation problems.

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Given such a steep drop of GBP, technicals don’t seem to matter at the moment.

If BoE doesn’t raise rates to try and defend the pound, then it will continue to weaken.

The US just told England to “hold my beer.”

Hmm. Was last week the weakest GBP is gonna get? Or is it just taking a breather?

While there are signs that bearish pressure has reached an extreme across a variety of financial markets, trying to call a bottom or a top is extremely risky.

The rebound in GBP/USD has largely been fuelled by the recent pullback in bond yields, and by extension, the Dollar. This move could continue and provide the pair with further support if upcoming US economic data signals a significant slowdown, and gives rise to speculation that the Fed may begin to slow the pace of rate hikes.

However, all trading carries risk. Comments from Fed members remain hawkish for the time being, and with concerns over the UK’s economy persisting, cable could easily be exposed to a new leg lower.

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Oof. Thanks!