Yesterday Monday was a "black day" for sterling. GBP/USD plummeted from 1.0795 to 1.0365, losing more than 4%. The stock reached the historical lows, keeping the potential to fall to the parity level.
That was the traders' reaction to the growth of the British budget deficit due to tax cuts and extra expenses.
The speech of the British Minister of Finance Kwasi Kwarteng with the announcement of the measures launched by the authorities to stabilize the economic situation added to the negativity. In particular, the government decided to reduce duties that will cost the treasury £72 billion. It is noteworthy that to compensate for these losses it was decided to reduce the unemployment benefits on which now exists a significant part of the population.
Initiatives of the authorities provoked a new wave of capital overflow into protective assets, as investors are hedging on forex. The pressure on sterling was leveled only after the intervention of the Bank of England, which hinted at the possibility of currency intervention.
Apart from political factors, strengthening dollar also put pressure on GBP/USD. The Fed is pursuing an ultra-tight monetary policy and experts believe it will hold another rate hike of 75 basis points on November 2.
Analysts believe the Fed Funds rate will reach 4.75-5.00% in the first quarter of 2023, which leaves the dollar as the most promising currency.
Despite the upward retracement, we believe that the downtrend of GBP/USD is still in force and we suggest placing a pending order
Sell-stop 1.0750 take-profit 1.0500 stop-loss 1.0820
More about GBP/USD trading
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