Labour Budget Criticized as USD Soars on Trade War Fears

The UK Labour government, led by Prime Minister Keir Starmer and Finance Minister Rachel Reeves, introduced its first budget in 14 years, implementing £40 billion in tax increases, including a £25 billion rise in social security contributions for businesses. Reeves assured businesses that further tax hikes or borrowing would not follow, emphasizing stability and certainty in future fiscal policy.

Despite these reassurances, business leaders, including those from the Confederation of British Industry (CBI), criticized the measures, citing a heavy burden on employers and concerns about declining investment attractiveness. UK productivity and investment levels remain low compared to major economies, with warnings that these tax measures could exacerbate economic challenges.

Inflation, influenced by rising energy prices, jumped to 2.3% in October, above the Bank of England's (BoE) 2% target. The BoE has responded cautiously, reducing interest rates modestly to 4.75% while balancing risks of persistent inflation driven by strong wage growth.

Deputy Governor Clare Lombardelli highlighted the need for gradual rate adjustments but warned of potential economic shocks if inflation expectations remain elevated. Retail sales and consumer spending weakened post-budget, although consumer confidence showed slight improvement, driven by optimism following recent political events. Rising costs of living and limited disposable income remain key concerns for households, especially ahead of the festive season.

Economic indicators, including slower growth in business startups and subdued retail activity, point to underlying structural challenges. Business sentiment reflects apprehension about government policies, with employers warning that higher payroll taxes from April 2024 could result in job losses or reduced wage growth. Despite these headwinds, certain sectors, like manufacturing, anticipate output recovery. The Labour government faces a delicate balancing act, striving to increase public spending and achieve robust economic growth while managing fiscal constraints and business confidence.

The U.S. dollar surged against major currencies on Tuesday after President-elect Donald Trump announced a planned 25% tariff on imports from Mexico, Canada, and China, raising fears of potential trade wars. In response, the dollar jumped over 2% against the Mexican peso, reached a 4.5-year high against the Canadian dollar, and hit its strongest level since July 30 against China’s yuan. While other currencies initially weakened against the dollar, they managed to recover some ground later in the day. This surge followed a period of pressure on the dollar in previous days, as U.S. Treasury markets reacted positively to Trump’s nomination of hedge fund manager Scott Bessent for Treasury Secretary. As a result, the GBP/USD pair is expected to trade within its current range, with a slightly increased likelihood of testing the lower boundary during this period.

Data for Technical Analysis (1D) CFD GBP/USD

Resistance : 1.2601, 1.2619, 1.2648

Support : 1.2543, 1.2525, 1.2496

1D Outlook

Source: TradingView    

Buy/Long 1 If the support at the price range 1.2503 - 1.2543 is touched, but the support at 1.2543 cannot be broken, the TP may be set around 1.2607 and the SL around 1.2483, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.2601 - 1.2641, TP may be set around 1.2683 and SL around 1.2523, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.2601 - 1.2641 is touched, but the resistance 1.2601 cannot be broken, the TP may be set around 1.2531 and the SL around 1.2661, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.2503 - 1.2543, TP may be set around 1.2455 and SL around 1.2621, or up to the risk appetite.       

Pivot Points Nov 26, 2024 09:18AM GMT