Breaking News: UK Fiscal Statement Urges Citizens to Tighten Belts, GBP Drops

This week’s UK Fiscal Statement, a mixture of tax rises and spending cuts announced by Chancellor Jeremy Hunt, may begin the process of restoring the UK’s battered reputation, according to the Institute of Fiscal Studies.

‘The swing over a couple of months from Kwasi Kwarteng’s fiscal loosening to a big fiscal tightening is a belated recognition of some harsh financial realities…the Chancellor will be hoping that his clear commitment to fiscal responsibility and the independence of the bank of England, his full involvement of the Office for Budget Responsibility, and his less pugilistic approach to economic policy-making will be enough to restore the UK’s tattered international reputation. Let’s hope so’.

While Sterling slipped immediately after the Autumn Statement, it has picked back up, especially against a weak US dollar. Whether this is the last of the Liz Truss/Kwasi Kwarteng GBP discount being washed out is debatable, but overall Sterling has performed well this week. And the pair are over 15 big figures higher than the late-September Truss/Kwarteng low.

Today’s UK retail sales were mildly Sterling positive, although a negative annual figure is nothing to shout about.

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The UK, and the US, economic data and events calendar is very thin next week, while US markets will be extra quiet with the Thanksgiving holiday on Thursday followed by Black Friday the next day.

For all market-moving data releases and economic events see the DailyFX Calendar.

A look at the daily GBP/USD chart shows the pair around one big figure higher on the week. The spike above 1.2000 on Tuesday was driven by a weaker-than-expected US PPI print, adding to market expectations that the Fed may pare back its aggressive monetary tightening policy. Recent Fed commentary however is trying to push back this sentiment, warning that rates are still going higher and for longer. If GBP/USD can keep support at 1.1740, then a two steps forward, one step back grind higher looks likely with the 200-day sma at 1.2225 and then horizontal resistance at 1.2292 the likely targets. A recent series of higher lows and higher highs add to the mildly-bullish backdrop.

GBP/USD DAILY PRICE CHART – NOVEMBER 18, 2022

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Chart via TradingView

Retail Traders are Undecided

Retail trader data show 43.59% of traders are net-long with the ratio of traders short to long at 1.29 to 1.The number of traders net-long is 4.15% lower than yesterday and 2.22% lower from last week, while the number of traders net-short is 3.81% lower than yesterday and 2.32% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.

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