The British pound is on a five-day losing streak and momentarily sank to its lowest level on record against the U.S. dollar at $1.03527; the previous low sat at $1.05200b back in February 1985. The markets reacted to Prime Minister Truss's financial package plan, in which they will cut taxes at various levels, including top-rate income and corporate taxes, elevating the country's borrowing.
The UK Prime Minister Liz Truss argues that "the change will turbocharge the economy, stave off recession and shake out a decade of underperformance" Experts believe that the mini budget released on Friday is raising fears of ramping inflation.
PM Truss plans to boost economic growth, which is likely to bring higher inflation to the U.K. This is the most radical tax cut since 1972, it surprised market participants, and they responded by shorting the GBPUSD. The tax cuts could have higher repercussions in the shot to mid-term as it threatens the state finances as there is also an expensive plan to subsidize energy in the U.K.
Last week the Bank of England raised the interest rate by 50 basis points; for some, this hike was not aggressive enough as inflation continues to be high; although it slightly went down in August, this is attributed to the lower cost of fuels.
The U.S. Federal Reserve is taking more robust measures. However, inflationary pressures are still high, and the U.S. stock market is falling; the USD continues gaining ground against all major Forex pairs this year, given its strong market labor.
The general trend continues to be downwards as the pair is down 8.5 % in the last ten trading sessions, and the short and long-term moving averages are above the current price, suggesting that the downtrend is likely to continue. Our parabolic S.A.R. indicator strengthens the short signals.
The Bollinger bands are opening up aggressively, but the price is falling faster than the bands are opening, suggesting that the price is relatively low; given the recent fundamental news, we could see the pound continue moving downwards in the short term.
The relative strength index is at 14%, way deep in the oversold area, we could see a temporary pullback from the pound as speculators try to buy the dip, but it will take a while before the pair exits the oversold status.
We love to hear new ideas from traders and want to know what you think!
If you like this topic and want to suggest future topics that you find helpful, let us know by clicking the ‘submit your feedback’ button below.
Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite.
Nothing contained in this website should be construed as investment advice. Any reference to an investment's past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.