The pound is slightly lower this morning when valued against the greenback. It traded in a relatively tight range, oscillation between 1.2826 and 1.2791 before consolidating around key support at 1.2800 heading into the Sydney session. Much of the overnight focus was on Angela Merkel’s declaration, overshadowing the UK government’s budget announcement which saw UK chancellor Phillip Hammond outline the UK’s plan to end austerity.
The announcement was a non-event for currency markets as developments were largely in line with leaked information over the past few weeks. The budget took advantage of upward revisions in growth forecasts, proposing these be spent rather than saved, including additional funding boosts for welfare initiatives and housing and infrastructure investment. It must be noted that these plans are largely conditional on an orderly Brexit, with the bulk of the decisions regarding how these moves will be funded left until after the Brexit decision, effectively adopting a ‘wait and see’ mentality.
With the budget announcement now behind us, traders will be looking towards Thursday’s Bank of England monetary policy decision, however given the ongoing Brexit uncertainty we do not anticipate there will be much change in the central bank’s policy outlook. Particular emphasis will be placed on any revisions to growth projections which could engender some price action.
Recent moves mean any sterling weakness could see the cable test 2-month lows of 1.2777 which were released last week. In terms of key technical levels to consider, we see the GBP/USD as being relatively well supported around the 1.2774 handle, whilst we expect any upside moves to meet technical resistance at levels nearer to 1.2830.