GBP/USD Forecast: Boris bulldozes Javid to make way for infrastructure spending, levels to watch

Fire all your advisers if you want to keep your job – that is the message that Prime Minister Boris Johnson conveyed to Sajid Javid, the now-former Chancellor of the Exchequer. The cabinet reshuffle was touted as a minuscule one, leaving all the top cabinet posts unchanged. However, after Johnson – presumably backed by adviser Dominic Cummings – laid down the gun, this rearrangement now includes a market-moving development. Javid refused to accept these conditions and resigned. 

The PM reportedly wants to have more control over economic policy, especially infrastructure spending. Javid was seen as a more fiscally-conservative treasurer that would oppose substantial deficit spending.

Javid's departure makes way for Rishi Sunak, who held a more junior post. Sunak may pave the way to broader expenditure on roads, hospitals, and trains – including the controversial and budget-sinking HS2 scheme. 

For pound traders, the potential spending spree that is the result of Javid's removal means that government is taking the initiative in stimulating the economy – relieving the Bank of England from the need to provide more accommodation. Under these circumstances, the pound has room to rise as prospects of a rate cut diminish. Moreover, incoming Governor Andrew Bailey may even opt to raise rates – following the current BOE guidance – if inflation edges up as a result of the government's splash.  

This dramatic political development overshadows other factors such as Brexit concerns, coronavirus fears, and recent meager data. 

Pound/dollar is now nearing 1.3050. What levels should traders watch?

GBP/USD Technical Analysis

Pound/dollar is trading at the highest since February, enjoying upside momentum on the four-hour chart while the Relative Strength Index is still below 70 – outside overbought conditions. The currency pair also surpassed the 100 Simple Moving Average on its way up.

The next level to watch is 1.3060, a high point from last week, just above the 200 SMA. It is followed by 1.3110, a level that temporarily held it down in late January. 1.3175 and 1.3210 are next.

Support awaits at 1.2990 and 1.2970 which both capped it earlier this week and then 1.2940, a temporary support line last week.