GBP/USD to struggle to surpass the 1.40 level as higher taxes are coming – MUFG
|Cable has fallen back below 1.3800 while EUR/GBP has also briefly nudged back above the 0.8600-level as the UK PM Boris Johnson’s tax hike plan continues to weigh. Higher UK rates have encouraged a stronger GBP, but the pound is set to struggle to see further gains, according to economists at MUFG Bank.
See – EUR/GBP: Delta variant risks to provide a selling opportunity around 0.8660 – Credit Suisse
UK government sets out more plans for higher taxes
“The UK government has decided to raise taxes again to provide more short-term funding for the NHS and to help pay for social care as part of long-term reform plans.”
“The higher taxes on employee earnings and employer wage costs could dampen the strength of the economic recovery from the COVID-19 pandemic in the coming years. At the same time, fiscal tightening will ease the need for the BoE to tighten monetary policy.”
“The pound has strengthened so far this year on the back of rising UK rates but further gains in the coming months are likely to prove more challenging.”
“It will be difficult for GBP/USD to break above resistance at 1.4000 and for EUR/GBP to break below support at 0.8500.”
“The balance of risks for the pound could be starting to shift more to the downside as well. If evidence starts to build that the UK recovery is slowing more than expected and with higher taxes on the way, it would encourage market participants to scale back BoE rate hike expectations.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.