- The UK Autumn Budget is due out today, and GBPUSD forecasts will focus on certain key metrics of the budget to measure the GBPUSD's response.
The UK Autumn Budget is due for release at 1230 hours GMT, and the speech by the UK Chancellor of Exchequer will determine how all GBPUSD forecasts will play out.
Some research reports on this event indicate that the Autumn Budget will address core subjects, which will be the main drivers of price action on GBP pairs.
Why Does the Autumn Budget Matter for GBPUSD?
There are several reasons why many analysts get involved in making GBPUSD forecasts in response to this news event. There have been historical instances of heavy market movements in response to this news release. When Kwasi Kwarteng was the Chancellor of the Exchequer under Prime Minister Liz Truss, the 2022 autumn budget speech triggered a steep plunge in GBPUSD. When Kwarteng was sacked, the reversal of some fiscal policy announcements halted the selling. Both instances created opportunity.
1.UK Autumn Budget: Points to Note
- Fiscal position – will this be a budget of austerity (tightening), or a loosening of fiscal policy (tax cuts/more spending)?
- Debt – Will the UK government issue more Gilts (UK bonds)?
- OBR forecasts – What will be the Office of Budget Responsibility’s projections on debt, growth and inflation? Look for upward or downward revisions.
- BoE policy – how will the new budget impact the Bank of England’s monetary policy, given the recent dovish tilt of the Monetary Policy Committee?
Some research reports on this event indicate that the Autumn Budget will address core subjects, which will be the main drivers of price action on GBP pairs.
2. Budget Details
GBPUSD forecasts will focus on the following metrics:
- Fiscal package: Is the budget one of austerity or loosening? What is the size of any cuts or increases in spending or taxes?
- Debt pathway: What are the debt-to-GDP targets? Will there be room for a buffer against future Gilts issuance?
- OBR forecasts: Any revisions to GDP growth to the upside or downside? Also, note the OBR’s inflation guidance and any upgrades or downgrades in borrowing or growth projections.
- Gilts’ response: Are yields on UK Gilts rising (GBP-negative) or falling/stable (GBP-positive)?
- BoE impact: a tighter budget signals more spending cuts and higher taxes. These have a cooling impact on inflation and free up more room for the BoE to cut rates.
3. GBPUSD forecast setups
The trade scenario for GBPUSD forecasts is as follows:
Budget info → Move on UK Gilts→ BoE policy expectations → GBPUSD direction.
Bullish scenario: A tighter budget or one that analysts view as reassuring -> uptick in the GBPUSD.
Bearish scenario: Budget is loose, or is heavy on taxes without growth metrics. Also, an OBR downgrade in growth with an increase in debt projections -> a downward move in GBPUSD.
4. Technical Analysis
There is an evolving double bottom on the GBPUSD daily chart, with the latest candle now testing the neckline resistance at 1.3187. A closing penetration above the neckline confirms the pattern, with a potential for a measured move towards the 1.3431 resistance.
However, rejection at 1.3187 suggests a retest of the November 4 low at 1.3011 in a move that invalidates the breakout attempt on a temporary basis.
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