By Camilo Botia,
The British pound rose on Thursday, extending gains after Chancellor Hunt’s spring budget unveiled tax cuts. However, analysts say the real driver wasn’t the budget itself but a combination of a weaker U.S. dollar and anticipation of a cautious Bank of England.
Sterling climbed 0.62% to a one-month high against the dollar ($1.2803) and edged into positive territory versus the euro (85.40 pence). Hunt’s decision to trim national insurance contributions was overshadowed by Federal Reserve Chair Jerome Powell signalling possible rate cuts later in 2024.
Powell’s comments suggesting the Fed might ease rates on a softening U.S. economy triggered a decline in the dollar, which in turn boosted the pound. Analysts downplayed the budget’s direct impact on the currency.
Some strategists have argued the budget wasn’t the reason for sterling’s strength, but rather it was attributed to Powell’s “even-handed approach” to interest rates, which weakened the dollar. In addition, the NFP and average hourly earnings data in the US will also influence the U.S. dollar, pressuring the GBP to reach new highs or new lows depending on how tight the labour market is, one of the key economic indicators the Fed will consider for future monetary policy decisions.
Next week’s key economic data releases, including GDP and wage inflation, will be a bigger focus for the Bank of England. Compared to the European Central Bank and the Fed, which are expected to hike rates this month, futures markets anticipate the Bank of England will hold steady until at least August.
So far, the GBPUSD is up 1.48% monthly,1,28% weekly, and 0,62% daily as of Thursday’s closing. The sterling closed a fifth consecutive bullish day on Thursday, edging closer to the $1.2827 resistance, which was last traded on December 28th of last year and is a significant weekly level. The MACD indicator echoes an ongoing bullish secondary trend on an enduring sideways primary trend in the sterling between its 200-day moving average and $1.2827. There is a second resistance at $1.2903. As a support, the ongoing trendline has been limiting the GBPUSD’s ability to reach lower lows. Below the 200-day moving average is the most significant level that could limit a bearish correction.
