GBP/USD Exchange Rate Climbs as Kwarteng Revokes Tax Cut
The Pound US Dollar (GBP/USD) exchange rate is strengthening this morning as market welcome the government’s tax cut U-turn.
At the time of writing the GBP/USD exchange rate is trading at around $1.1225, which is roughly up 0.6% from this morning’s opening rate.
Pound (GBP) to Extend Recovery on Government U-Turn?
The Pound (GBP) is on the rise today as GBP investors focus in on Chancellor Kwasi Kwarteng and the reversal of the 45p tax cut.
Kwarteng and Liz Truss released a tax cut centred fiscal plan late last month which was poorly received by markets.
In an interview with BBC breakfast Kwarteng said that there was a lot of good steps in the growth plan. However, he admits the 45p tax cut was a ‘distraction’ from a ‘good set of policies’.
Kwarteng is expected to give a speech this afternoon, if he performs a U-turn on other aspects of the budget then the Pound could strengthen.
Also causing some movement for the Pound this morning is the final manufacturing PMI for September. The data printed at 48.4, instead of 48.5, as expected.
Whilst this shows the industry is still in contraction, it’s unlikely to dent GBP too much in the wake of the governments U-turn this morning.
US Dollar (USD) to Regain Footing on Manufacturing PMI?
The US Dollar (USD) is wavering this morning ahead of the US trading session, amid an upbeat market mood this morning.
The sentiment shift towards risk sensitive currencies appears to being driven by the UK government’s discussion to scrap the 45p tax cut. This move has seen GBP reach around $1.12 against USD this morning.
Looking ahead to this afternoon, the focus for USD investors will be ISM manufacturing PMI for September.
The US manufacturing industry is expected to report another month of growth, albeit at a slower pace than previously.
If the figures print as forecast, then USD could see some marginal gains this afternoon. However, If the data falls short then the US Dollar could face headwinds later today.
Although, investors are confident the that the data will print positively. Timothy Fiore, Chair of the ISM said:
‘Sentiment remained optimistic regarding demand’.
Ahead of this decision though, the safe-haven currency will likely continue to be subdued amid a prevailing risk-on mood.