GBP/USD up on mini-Budget, Brexit talks next

With the US dollar continuing to underperform, the British pound has taken advantage and racked up gains of 1.2% this week. Currently, GBP/USD is trading at 1.2649, up 0.32% on the day.

This week’s economic data has been mostly of the second-tier variety, so the markets had more time to focus on the UK summer statement, dubbed a “mini-Budget”. Ordinarily, these announcements would not receive widespread news coverage and took over the headlines, but given the severe economic conditions in the wake of Covid-19, the mini-budget was front-page news. Financial markets reacted favorably to the mini-Budget, as GBP/USD rose 0.50% on Wednesday, its strongest gain since July 1.

The mini-Budget took aim at high youth unemployment, with new programs to create jobs for young workers and incentives for businesses to hire youth. As well, the VAT for food and hospitality providers was slashed from 20% to 5%. There was also relief for the sagging housing market, with a tax exemption on the first GBP 500,000 on the price of homes.

The on-again-off-again Brexit negotiations are set to resume on Thursday in London. Last week’s talks ended earlier than planned due to a lack of progress. The sides have been unable to bridge their differences on a range of issues, including fishing rights, state subsidies and the jurisdiction of the European Court of Justice. If no agreement is reached by the end of the year, the trade relationship between the UK and the EU will be regulated by the World Trade Organization rules.

GBP/USD Technical

GBP/USD is currently on an uptrend, albeit at a slow pace. This is putting pressure on resistance lines. On Wednesday, the pair tested resistance at 1.2616 and broke through this line in today’s Asian session. GBP/USD then pushed higher but was unable to break 1.2668, which is a technical resistance level. The next line of interest is at 1.2682, which is very close to the 78.6% Fibonacci retracement level, at 76.4%.

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