GBP/USD advances towards 1.1400 on UK’s reverse tax cut move, US NFP in focus
- GBP/USD is marching towards 1.1400 as pound bulls got strengthened on UK’s U-turn on tax cut move.
- More liquidity in the palms of individuals due to tax cuts would have offset the impact of policy tightening.
- Fed’s tight monetary policy stance has trimmed the extent of manufacturing activities.
The GBP/USD pair is gathering momentum in the early Tokyo session to cross Monday’s high at 1.1334. The cable has been strengthened after witnessing a north-side break of the consolidation formed in a 1.1029-1.1232 range. The asset is expected to hit the critical resistance of 1.1400 sooner as the UK government’s U-turn move on tax cuts has infused fresh blood into the pound bulls. Adding to that, the weaker US dollar index (DXY) is a cherry on the cake.
On Monday, the report came from British Prime Minister Liz Truss and Finance Minister Kwasi Kwarteng citing that the administration would reverse a cut to the higher rate income tax causing UK gilt yields to fall sharply. As reports from Kwarteng’s office confirmed that the government is not proceeding with the abolition of the 45p tax rate, pound bulls displayed a long-lasting ball.
The market participants were blaming the administration for progressing with monetary easing in the UK economy as the Bank of England (BOE) is already addressing the troublesome job of containing the mounting price pressures. More liquidity in the palms of individuals due to tax cuts would have offset the impact of policy tightening measures taken at the time.
Meanwhile, the US dollar index (DXY) has established confidently below 112.00 and is looking to extend correction further. US economic fundamentals are deteriorating now as soaring interest rates by the Federal Reserve (Fed) have forced the manufacturers to trim their usage of production capacities. A decline in US ISM Manufacturing PMI data to 50.9 vs. the expectations of 52.2 and the prior release of 52.8 activated seller in the counter.
This week, the US Nonfarm Payrolls (NFP) will hog the limelight. As per the consensus, the US economy created 250k jobs in September against the August reading of 315k. While the jobless rate will remain steady at 3.7%.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
