GBP/USD: Poised to rebound – Westpac

The UK will receive a long-awaited Budget next week after the longest period between Budgets since at least 1900. Meanwhile, EU-UK negotiations began this week without hostility. The cable is ready to rebound in the opinion of analysts at Westpac Institutional Bank.

Key quotes

“Last month’s shuffling of Chancellors and floating of balloons about tax-raising initiatives suggested that Govt. might limit the risk of a blowout in the budget deficit (finally back below -2% of GDP).”

“The widening of COVID-19 could actually mean that the Budget proves to be more expansionary in order to bolster nascent lifts in investment while holding to manifesto commitments to increase health, welfare, security services, and education spending.”

“Andrew Bailey, Carney’s replacement, stated this week that more evidence is needed for such an early move and indicated that he is in close discussions with the Treasury with respect to next week’s Budget.”

“Negotiations on the future relations with the EU began this week. Rather than increasing tensions that had led to GBP weakening recently, the talks have proceeded with less apparent hostility. GBP/USD seems poised to rebound within its 1.2725-1.3200 range.”