The market takes into account the budgetary impact – ING

The Bank of England’s broad Pound Sterling (GBP) index is back to challenge July’s high around 84.65, notes Chris Turner, FX strategist at ING.

1.3300/3330 us next short term target for GBP/USD

“These levels mark the highest levels since the Brexit vote in June 2016. Driving the GBP up was malaise in both the eurozone and the developing world, also in the US, combined with the reluctance of the BoE to signal a full-blooded relaxation cycle. Warmer relations with Europe may have helped, but this is harder to quantify.”

“Now very much in the spotlight is British Chancellor Reeves’ first budget at the end of October. There is much speculation about the £20bn tax hike – worth around 0.7% of GDP. However, this may not amount to a fiscal tightening, as she will use the money to address the real-terms reduction in public spending under the previous Conservative government. Public sector pay rises alone could reach £10 billion.”

“For the British pound (GBP), this may mean that this is a fiscally neutral budget and one that could see the pound continue to outperform, particularly against the US dollar (USD). 1.3300/3330 may be the next short-term target for GBP/USD, with support found at 1.3100/3120.”