Market considers the budget impact – ING

The Bank of England’s broad Pound Sterling (GBP) index is back to challenge the July high at around 84.65, ING’s FX strategist Chris Turner notes.

1.3300/3330 us the next short-term target for GBP/USD

“These mark the highest levels since the Brexit vote in June 2016. Driving the GBP higher has been the malaise both in the eurozone and now emerging in the US, too, combined with the BoE’s reticence to signal a full-blooded easing cycle. Warmer relations with Europe might have helped, but this is harder to quantify.”

“Very much in focus now is UK Chancellor Reeves’ first budget at the end of October. There is much speculation over £20bn of tax increases coming through – worth around 0.7% of GDP. However, this may not represent fiscal tightening since she will be using the money to address the real-terms cut in public spending under the previous Conservative government. Public sector pay rises alone may be worth as much as £10bn.”

“For the Pound Sterling (GBP), that may mean this is a fiscally neutral budget and one that could see the pound continue to outperform – especially against the US Dollar (USD).  1.3300/3330 may be the next short-term target for GBP/USD, with support being found at 1.3100/3120.”