The UK Government U-Turns on Top Tax Rate, GBP/USD Supported


GBP/USD Analysis

Markets reacted negatively to the UK government's Growth Plan [1] that included tax cuts and was not accompanied by an assessment by the Office for Budget Responsibility (OBR), sending the pair to all-time lows last Monday, while UK100 slumped and bond yields surged.

The Bank of England issued a statement, saying that it "is monitoring developments in financial markets very closely" and that it "will not hesitate to change interest rates by as much as needed" [2], before stepping in with temporary long-date bonds purchases to "restore orderly market condition". [3]

These actions helped calm market and the British Pound staged a relief-rally, posting its best week of the year and covering more than half of September's losses. After last week's crazy price action, GBP/USD seems to stabilize at the start of the new one, finding support from the governments U-turn on part of its spending package.

After relevant reports, UK Chancellor of the Exchequer Kwasi Kwarteng, confirmed today ahead of his speech at the Torry Conference later in the day, that he will not go ahead with the abolition of the 45% top income tax rate. [4]

The government's fiscal plan may lead the Bank of England to more aggressive rate hikes, as the UK surprisingly avoided a GDP contraction in Q2, while expectations around the Fed have moderated due to recession fears.

Why Trade with FXCM

Commission free with fast, efficient execution.

CME's FedWatch Tool still prices in a 75 basis points hike in November and a 50 bps move in December at the time of writing, but with lower 51.2% probabilities for both and the US Dollar has deflated over the last few days. [5]

Given the relief-rally, GBP/USD now has the opportunity to push for the critical 1.1400-20 region, which includes the EMA200 and the 76.4% Fibonacci of the September high/low plunge. Daily closes can put near-term bias on the upside, but we are cautious for now about a broader advance towards and beyond 1.1738.

Despite the rebound, monetary policy differential is unfavorable for the pair and it is hard to see sustained Dollar weakness, as long as the Fed remains committed to its aggressive tightening path. Below the EMA200, GBP/USD is vulnerable to sub-1.1000 moves, although a decline below the ascending trendline form the record lows may require fresh impetus.

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.



Retrieved 03 Oct 2022


Retrieved 03 Oct 2022


Retrieved 03 Oct 2022


Retrieved 03 Oct 2022


Retrieved 29 Sep 2023

${} / ${getInstrumentData.ticker} /

Exchange: ${}

${} ${getInstrumentData.divCcy} ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%) ${getInstrumentData.priceChange} (${getInstrumentData.percentChange}%)

${getInstrumentData.oneYearLow} 52/wk Range ${getInstrumentData.oneYearHigh}

Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.

Past Performance: Past Performance is not an indicator of future results.

Spreads Widget: When static spreads are displayed, the figures reflect a time-stamped snapshot as of when the market closes. Spreads are variable and are subject to delay. Single Share prices are subject to a 15 minute delay. The spread figures are for informational purposes only. FXCM is not liable for errors, omissions or delays, or for actions relying on this information.