The pound rose and volatility edged up as traders awaited the details of the UK budget to be released today. Ahead of the release, UK Finance minister Rachel Reeves announced that the minimum wage for most adults will increase by 6.7% from April next year.
The GBP/INR was last unchanged on the day at 109.11, on course for its first monthly loss since September 2023, down around 3%.
Reeves will deliver the new Labour government’s first budget in 14 years on today, two years after then-Prime Minister Liz Truss’ tax-cutting plans sparked a crisis in the bond market.
She plans around 40 billion pounds ($52 billion) worth of fiscal measures, according to government sources, mostly from tax increases plus cuts to some public services, to meet her pledge to cover day-to-day spending without borrowing.
In the run-up to Truss’ then-finance minister presenting the budget in 2022, overnight implied options volatility for sterling hit nearly 30%.
Meanwhile, global asset managers are also relatively sanguine towards UK governments bonds – one of the biggest casualties of the Truss “mini budget” in September 2022.
Modest, but steady economic growth, along with a continued decline in UK inflation have reaped only one rate cut so far from the Bank of England this year.
Markets are priced for at least one more before the end of this year, but the BoE is expected to be one of the slower major central banks when it comes to lowering borrowing costs, meaning the pound has enjoyed a degree of support this year.
Sterling is still the best-performing major currency against the dollar in 2024, with a near 2% gain, compared with runner-up, the Chinese yuan, which in the offshore market, is down 0.5% against the U.S. currency.
With the U.S. presidential election just a week away, and the outcome too close to call, analysts have said many investors are unwilling to lay on large new trades.
The UK stock market, pound sterling, and bond market have priced in negative news, indicating limited impact from “stealth” tax increases. The upcoming budget announcement could alleviate uncertainties, potentially triggering a relief rally in UK stocks and a rise in the pound.
Technical Outlook – British Pound / Indian Rupee (UK)
The GBPINR pair turned lower from a peak of 112.46 since start of the month, retracing to 108.56, down nearly 2.75%. Yesterday, it consolidated around 108.90-109.10, and settled at 109.11 with a modest 0.05% gain.
Over the last four days, the pair has been range-bound between 108.65-109.20, forming indecisive candlesticks.With the RSI 14 and its 9 SMA near oversold territory at 40, a potential bounce-back is indicated. A favorable announcement today could see recovery toward 109.65-109.88, while any dip toward 108.60-108.40 may attract buying interest.
Key support lies at 107.80, with further pressure likely toward 107.32-107.00 if breached.
As the Budget approaches, the pound is set for a dramatic shift, expected to trade volatile. Favorable measures could boost the currency and set the stage for a thrilling Bank of England policy meeting or vice a versa.
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Commodity Samachar Securities
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