UK Pound Rises on Spring Budget, US Dollar Faces Pressure

The British pound experienced an increase against the dollar following the release of UK Finance Minister Jeremy Hunt's spring budget, which featured tax cuts but lacked surprises for the market. The focus shifted to the U.S. dollar's direction.

In February, UK consumer spending declined due to adverse weather conditions, as reported by the British Retail Consortium (BRC). Despite a 1.1% increase in spending from the previous year, accounting for inflation, this marked a slight dip from January's 1.2% rise. The National Insurance social security contribution cuts implemented in January did not significantly boost consumer spending.

Moreover, Barclays, a British universal bank, also reported the weakest growth in consumer spending in almost two years, with a 1.9% increase in card transactions compared to the previous year. However, consumer confidence in non-essential spending reached its highest point since November 2021, while concerns about inflation softened to the lowest level in over two years.

In February, British companies exhibited their strongest performance since May the previous year, indicating the economy's recovery from a brief recession in the third and fourth quarters of 2023. The Bank of England remained vigilant due to inflation pressures, and Hunt was expected to unveil measures to boost the economy in the upcoming budget.

A survey revealed that British house building activity declined at the slowest rate since late 2022, signaling a potential recovery in the property sector. Despite economic concerns, new orders expanded for the first time since July the previous year, and house prices rose for the fifth consecutive month in February.

The dollar faced its most significant weekly decline of the year as Federal Reserve Chair Jerome Powell expressed confidence in potential interest rate cuts. Traders awaited U.S. employment data to confirm market expectations for a U.S. rate cut by June.

Meanwhile, the number of Americans filing new unemployment claims remained unchanged, and the February employment report was highly anticipated.

U.S. layoff announcements increased by 3% in February, reaching the highest level since the previous March. The technology sector experienced significant job cuts, while the finance sector saw a 56% increase in cuts compared to the previous year. The Job Openings and Labor Turnover Survey indicated a marginal decline in U.S. job openings and a three-year low in workers resigning, suggesting a gradual easing of labor market conditions.

The U.S. trade deficit widened sharply in January due to increased goods imports, potentially impacting economic growth. The deficit reached $67.4 billion, representing 2.9% of GDP. Trade added 0.32 percentage point to the economy's 3.2% growth rate in the fourth quarter of the previous year.

Imports, particularly of capital goods and motor vehicle parts, rose significantly, while exports experienced only a modest increase. The trade deficit's impact on economic growth in the first quarter was expected to be around 2.0%. Consequently, it is anticipated that the US dollar could experience some downward pressure in this timeframe, possibly fluctuating within a limited upper range due to the relatively similar rates of return between the two economies.

Data for Technical Analysis (5H) CFD GBP/USD

Resistance : 1.2814, 1.2818, 1.2823

Support : 1.2804, 1.2800, 1.2795    

5H Outlook

1H Outlook          

Source: Investing.com

Buy/Long 1 If the support at the price range 1.2794 - 1.2804 is touched, but the support at 1.2804 cannot be broken, the TP may be set around 1.2818 and the SL around 1.2789, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2814 - 1.2824, TP may be set around 1.2833 and SL around 1.2799, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2814 - 1.2824 is touched, but the resistance 1.2814 cannot be broken, the TP may be set around 1.2804 and the SL around 1.2829, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2794 - 1.2804, TP may be set around 1.2790 and SL around 1.2819, or up to the risk appetite.       

Pivot Points Mar 8, 2024 02:24AM GMT