British Pound Gains Again Despite UK Spring Budget Jitters

The British Pound starts a busy week with gains against a United States Dollar still feeling the pressure from last weeks news of a sharper-than-expected contraction in the manufacturing sector.

Most of the big scheduled news for GBP/USD will come from the ‘USD’ side of things in the coming days, but Sterling‘s home country will likely see some interest generated by Wednesday’s Spring Budget from Chancellor of the Exchequer Jeremy Hunt.

After nearly fourteen years in power, the ruling Conservative Party lags badly in the polls. However, markets will likely be quick to take their anger out on Sterling if voters are offered any unfunded fiscal largesse, of the sort which broke the short-lived administration of former Prime Minister Lizz Truss back in 2022.

After a shallow recession at the end of last year, the British economy is probably back to growth, but not impressive growth. And calls are increasing for more expenditure on threadbare public services while overall debt has already grown, to nearly 100% of Gross Domestic Product. Throw in the highest tax burden ever imposed in peacetime and few will envy Mr. Hunt his grim balancing act.

Still, with both leading parties showing commitment to fiscal discipline (as if they have a choice), an unthreatening budget statement might leave Sterling unmoved.

The rest of the weeks action will come from the other side of the Atlantic. Heavyweight US data is on the slate, including nonfarm payrolls and Federal Reserve Chair Jerome Powell is up before both Congress generally and the Financial Services Committee for scheduled testimony.

Recall that payroll data sent the Dollar soaring last month with a wholly unexpected surge in job creation. Markets will be on watch for a rerun on Friday.

Sterling has been confined to a narrowing range since early February as in this, as in other markets, volatility has fallen sharply. The markets have moved from anticipating early interest rate cuts from the Federal Reserve this year to pushing those bets further out, perhaps well into the second half.

For now, GBP/USD looks trapped between resistance at 1.27110 and support at 1.25134. That latter level comes in just ahead of pretty solid retracement support at 1.24901.

There‘s a degree of caution around this market, however, After all, December’s four-month high of 1.28247 isnt exactly far away, but the bulls show no inclination to retry it. For now sellers seem to appear on any durable break above the 1.27 psychological resistance point, to the point where the market is wary of this happening again this week.