Philip Hammond, Chancellor of the Exchequer recently addressed Parliament with the highly-vaunted Spring Budget. Despite conservative party promises to tighten the economy, one of the proposals by Hammond would see an increased tax on self-employed people, adding fiscal liability to an additional 2.5 million Britons. Several other interesting points were raised in the recent Spring Budget, notably an increase in the sugar tax to fund children’s sport, and a heavy tax penalty on UK pensioners taking their money offshore. These were but a few of the measures highlighted in the most recent address to Parliament.
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The GBP had a muted reaction to the Spring Budget, but remained perilously close to its 7-week lows against the greenback. By the end of the trading session, the GBP/USD pair had racked up yet another day of losses, and this is becoming a worrying trend for sterling bulls. For binary options traders, multiple successive sessions of losses have built strong trendlines for lucrative trading opportunities.
What Can We Expect from the GBPUSD Pair this Week?
DXY Close to 52-Week High Level
For starters, the GBP/USD pair is hovering around 1.2100, and is struggling to hit the 1.2300 handle as strong demand for USD continues. This comes as no surprise, given the imminence of a rate hike on March 15, 2017. Recall that there is now a 91% probability of interest rates increasing by 25 basis points on Wednesday next week. This will raise the federal funds rate to 0.75% – 1.00% in short order. Any increase to the FFR raises demand for the USD. When that happens, currency traders will sell the GBP and buy USD. That’s precisely what is happening. The ADP report released on Wednesday, 8 March gives further impetus to rising yields on US Treasuries. This also helps the greenback to hit unprecedented levels. Consider the US dollar index (DXY) is now trading at 102.03, a smidgen below its 52-week high of 103.82. This is an extremely positive sign for dollar bulls.
What About Brexit Concerns? How is the GBP Being Impacted?
The GBP has been pushed lower as the Brexit saga rears its ugly head once again. Ever since February 2017, the Brexit issue has been the main driver of GBP weakness. Recently, the House of Lords voted against the current Brexit bill, and sought modifications on Tuesday, 7 March. Such is the negative sentiment in Parliament, that GBP bulls are finding it difficult to see any upside. The Chancellor of the Exchequer painted a rosier picture of the UK economy, but that did little to assuage concerns. GBP bulls are being mauled by GBP bears. The focus is now squarely on the monetary policy of the European Central Bank. Currently, the ECB is pursuing an accommodative policy, but a reversal could further strengthen the EUR and weaken the GBP. Such a move would heavily affect FX markets, throwing additional volatility into the mix.
The Final Word from the Trading Desk
From a technical perspective, the prognosis for the GBP/USD pair is bearish across 1 week, 1 month and 1 quarter. The weekly forecast has a built-in rate of 1.2189, the 1 month forecast has averaged out at 1.2145, and the next 3 months have an average forecast of 1.2093.
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