The GBPUSD pair is up by more than 20 basis today as traders reflect on the ongoing Brexit talks and the budget proposals revealed yesterday. The pair is in its fifth day of straight gains and is trading at 1.2640, which is the highest it has been since June 16.
Rishi Sunak budget speech
The GBPUSD rose yesterday after Rishi Sunak, chancellor of the exchequer, delivered a rather upbeat statement yesterday. In the statement, he opted out of the job retention scheme beyond September and instead offered several tax relief to people and businesses. In the job retention scheme, the government has been paying salaries to most workers. This has helped the unemployment rate remain relatively stable. However, this means that more job losses will come in September.
Another positive measure is the fact that the government will now start paying a £1,000 bonus for all workers who will be brought back from furlough. This amount will be important in most industries, especially the hospitality sector.
The government also announced that it will slash property and VAT taxes in its bid to stimulate the economy. For example, the government will cover 50% of restaurant bills in a bid to save the vulnerable industry. Still, the impact of the new tax cuts will be minimal.
Meanwhile, the GBPUSD is reacting to the sixth round of Brexit talks that are happening in London. This response has been relatively muted. Analysts still expect the two sides to make minimal progress. Another challenge is that the UK government has already submitted an application to the EU to put border control posts at the Irish Sea Ports in line with the deal signed in December. A leaked letter yesterday warned of key dysfunction in that border. In a report, The Guardian said:
“The essential problem is that distance matters to trade, and a Brexit model that was conceived in denial of that fact puts the UK at a disadvantage in the negotiations.” The report added:
“Mr Johnson defers encounters with reality, but cannot avoid them indefinitely. He will compromise over Brexit, just as he did last year. “
GBPUSD technical analysis
The GBPUSD pair is trading at 1.2640, which is above the 50-day and 100-day moving averages. The pair is also slightly below the 61.8% Fibonacci retracement level at 1.2720. This means that the momentum will likely continue as bulls attempt to test the next resistance level at 1.2805. However, analysts at ING warn that this reprieve will be short term. They wrote:
“While the size of the stimulus announced is modestly larger than expected, in our view it is not significant enough to prompt further GBP gains. The announced measures today do not significantly alter our UK growth outlook, and with the overriding GBP driver.”