GBP/USD in 37-year lows, EUR/GBP 2-year highs and EUR/USD fresh 20-year lows
GBP/USD slid to its 1985 low and EUR/GBP rallied to a 2-year high following the UK’s fiscal stimulus mini budget while EUR/USD slid to fresh 20-year lows amid Italian far right election outcome.
EUR/USD drops to new 20-year lows as US dollar scales fresh 2-decade high
This year’s slide in EUR/USD has taken it to levels last seen in June 2002 amid the Federal Reserve's (Fed) aggressive monetary tightening policy with market participants expecting another 125-basis point (bp) rate hike over the next couple of meetings, following three consecutive monthly 75bp rate rises which drove the US dollar to two-decade highs. With Italy’s first far right party since Benito Mussolini’s National Fascist Party in the 1920’s on course to win Sunday’s election, the euro is further under pressure.
EUR/USD slid by around 4% since last week to fresh 20-year lows, slightly below key support seen between the June 2000 and January 2001 highs and the September 2002 low at $0.9698 to $0.9593 by dropping close to the $0.955 mark. Below it beckons the September 2001 high at $0.9331.
Minor resistance can be spotted at the June 2000 high at $0.9698 above which lurks more substantial resistance around the 6 September trough at $0.9865.
EUR/GBP rallies to 2-year high post UK mini-budget
EUR/GBP has so far shot up by around 6% since Friday’s open as currency traders sold the pound sterling following the announcement of the UK’s mini budget.
It introduced several high-cost fiscal stimuli which prompted fears about the government’s ability to finance these initiatives without incurring massive debt as the cost of borrowing is continuing to increase.
The cross rallied to two-year highs and only ran out of steam below its £0.9291 September 2020 high before giving back some of its strong gains early Monday morning while slipping back towards the minor psychological £0.90 mark. Strong potential support below £0.90 sits between the June and November 2020 lows at £0.8866 to £0.8862.
GBP/USD drops to 1985 low
Following the UK’s aggressive fiscal stimuli mini budget on Friday, GBP/USD dropped by over 7% and came close to its 1985 low around the $1.035 mark before regaining some of its recent losses on short covering.
The pound sterling reacted negatively to the announcement of the UK mini budget’s income tax cuts, stamp duty reductions, scrapped corporate tax increases and bankers’ bonus caps as investors worry about the government’s ability to finance these initiatives without incurring a huge debt burden as the cost of borrowing is continuing to increase. This is apparent as 5-year gilt yields increased to 4%, a 50bp move in one day on Friday.
Furthermore, as disposable income increases, there is likely to be an increase in consumer demand, further accelerating inflation and calling for more interest rate hikes. GBP/USD currently trades in technical no man’s land between the $1.035 January 1985 low and the minor psychological $1.10 level. Above it minor technical resistance can only be spotted between the 7 and 16 September lows at $1.1351 to $1.1406.
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