Bearish view
- Set a sell-stop at 1.1150 and a take-profit at 1.100.
- Add a stop-loss at 1.1350.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.1325 and a take-profit at 1.1420.
- Add a stop-loss at 1.1250.
The GBP/USD price started the month well as investors reacted to the new policies by Lizz Truss and Kwasi Kwarteng. It rose to a high of 1.1340, which was the highest level since September 22. It has risen by more than 8% from the lowest level this year.
Lizz Truss boosts sterling
The GBP/USD price has been in a strong bearish trend in the past few weeks as investors on the fiscal condition of the UK. This crisis started when Kwasi Kwarteng, the country’s Chancellor, delivered his mini-budget.
In it, he announced a series of tax cuts that sent shockwaves in the UK and around the world. The announcement involved tax cuts worth about 45 billion pounds. The beneficiaries of these cuts were companies and wealthy individuals. As a result, some analysts started comparing the UK to an emerging market.
The GBP/USD pair continued its bullish comeback after Lizz Truss made a u-turn on some of these policies. Precisely, she vowed to reverse her top tax rate for the wealthy. She argued that her tax cut on wealthy individuals earning more than 150,000 pounds would not pass the House of Commons. The plan would have cost taxpayers between £2 billion and £3 billion a year.
Therefore, the British pound and UK gilts recovered modestly as investors assessed that Truss and her administration were listening to the market. Still, it is too early to assess whether the British pound will sustain these gains since the other parts of her tax cuts actually cost more.
Some analysts believe that the economy can handle these tax cuts considering that it has one of the lowest debt-to-GDP ratios in the G7. The next key catalyst for the GBP/USD pair will be the upcoming JOLTs job openings data from the US and a speech by Fed’s Mary Daly.
GBP/USD forecast
The GBP/USD pair has been in a strong bullish trend in the past few days. It has managed to rise from last week’s low of 1.0350 to a high of 1.1330. The 25-day and 50-day moving averages have made a bullish crossover pattern. At the same time, the Relative Strength Index (RSI) has risen close to the overbought level.
The pair is approaching the important resistance level at 1.1420, which was the lowest point on September 7. Therefore, the pair will likely resume the bearish trend as the enthusiasm of the new tax changes by Truss fade. This could see it move below 1.1100 again.
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