GBP/USD and EUR/USD rise on UK government tax U-turn, EUR/GBP slip
EUR/USD and GBP/USD continue to appreciate while EUR/GBP comes off 2-year high as UK government makes U-turn on 45p tax cut for high earners.
EUR/USD tries to overcome 1-month downtrend line
EUR/USD has so far risen by around 3% from last week’s 20-year lows, made close to the $0.95 mark, as Ukrainian troops continue to regain parts of Russian annexed territories.
Flight to quality flows into the US dollar diminished last week as the Bank of England (BoE) said on Wednesday that it was setting aside £65 billion to buy bonds until mid-October to ease pressure on UK pension funds and insurance companies which led to a fall in the US dollar and also benefitted EUR/USD.
EUR/USD’s recovery from last week’s fresh 20-year lows at $0.9536, made slightly below key support seen between the June 2000 and January 2001 highs and the September 2002 low at $0.9698 to $0.9593, has taken it back to its one-month downtrend line which capped it on Friday. Above it lies more significant resistance between the July, August and early September lows at $0.9865 to $0.9952 which is likely to cap on Monday. Minor support comes in at Friday’s $0.9735 low and also at last Tuesday’s $0.9671 high.
EUR/GBP trades back at pre-mini budget levels
EUR/GBP has come off last week’s £0.9283 two-year high and is trading back at levels seen before the UK mini-budget on Friday 23 of September which introduced the biggest tax cuts in the UK in 50 years, as the BoE had to intervene and buy bonds in order to “restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses”.
Following last week’s UK central bank intervention and this Monday morning’s U-turn by the UK government when it abolished plans to cut tax on high earners, EUR/GBP slid back to its £0.8721 June peak which acted as support. Below it lies the 22 September low at £0.8692.
Minor resistance above the £0.8787 mid-September high can be spotted between the 26 and 28 September lows at £0.8853.
GBP/USD trades back at pre-mini budget levels amid UK government tax U-turn
Last week’s sharp drop in the value of the British pound sterling following the UK’s aggressive fiscal stimuli mini budget, has been followed by an 8.5% rise in GBP/USD amid the BoE’s £65 billion bond buying announcement last Wednesday in order to stabilise financial markets and this Monday morning’s abolishment of the UK higher earners 45p tax rate cuts.
Despite the saving of around £2 billion, out of a £150 billion annual fiscal loosening, being minimal, the pound sterling continues to recover from last week’s record lows at $1.035.
GBP/USD nears minor technical resistance seen between the 7 and 16 September lows at $1.1351 to $1.1406 while immediate support can be found around the minor psychological $1.10 mark.
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