29.05.202216:52 Forex Analysis & Reviews: GBP/USD. Britain introduces a windfall tax on oil and gas producers' profits: pound received temporary support

The pound-dollar pair balances between 25 and 26 figures, reacting impulsively to the current news flow. Against the background of the general weakening of the greenback, the British currency is trying to develop a corrective growth in order to settle above the 1.2600 mark. But each point won is given to GBP/USD bulls with great difficulty: they meet the resistance of bears, who significantly slow down the progress of moving upwards. Intraday price growth is replaced by a subsequent decline. And vice versa. However, if you look at the weekly chart of GBP/USD, you can come to the obvious conclusion that the total account is on the bulls' side. The correction continues for the second consecutive week, although recently bulls are not as confident as in mid-May.

After a series of disappointing releases (weak PMI indices, a slowdown in UK GDP growth in the first quarter amid increased price pressure), the pound received support from the British government. Finance Minister Rishi Sunak just announced that his department is offering a cost-of-living support package worth 15 billion pounds. This package includes a 400-pound discount on electricity bills, as well as a one-time payment of 650 pounds to eight million of the poorest households. In addition, 150 pounds will be paid in a lump sum to all persons receiving disability benefits.

All these financial assistance measures will be partially funded by a levy from oil and gas companies: a temporary 25% tax on excess profits of companies operating in the oil and gas sector will be introduced in the UK. According to the calculations of the Ministry of Finance, this will attract about 5 billion pounds over the next year. It is not known for what period the new tax is being introduced. Sunak rather vaguely commented on the relevant issue, stating that this measure will be gradually abandoned, but only when energy prices "return to a historically normal level." At the same time, the Finance Minister assured that this support package will have a "minimal impact" on inflation.

According to the British media, some members of the government have spoken out against the introduction of a new tax: in their opinion, such a step with unpredictable consequences will at least reduce the volume of investments. But their voices remained in the minority after the release of data on the growth of inflation in the country (CPI reached 40-year highs), as well as after the deterioration of macroeconomic forecasts by the Bank of England (BoE). Let me remind you that following the results of the May meeting, the English central bank warned of a sharp slowdown in GDP growth – not only this year, but also next year. In 2023, the central bank expects the economy to shrink by 0.25% (whereas previously it was expected to grow by 1.25%). In 2024, the volume of GDP should increase by 0.25%, while earlier forecasts spoke of one percent growth.

Amid such forecasts, which were partially confirmed by data on the growth of the British economy in the first quarter, many experts suggested that the BoE would not implement a too aggressive scenario to tighten monetary policy. In their opinion, the British central bank will take a break after two increases at the next meetings. The pound plunged throughout the market, spurred also by the failed PMI indices.

Nevertheless, GBP/USD bulls were able to deploy the pair around the middle of the 24 figure. First of all, due to the weakening of the US currency. Then the Ministry of Finance of Great Britain joined in. The optimism associated with fiscal stimulus drowned out the pessimistic assessments of the British central bank. Here it should be noted at once that this optimism is temporary, such fundamental factors are unable to act for a long time. Therefore, the further growth of the pair may be due only to the weakening of the US currency.

Given this factor, we can assume that the ceiling of the current price growth is 1.2660 – this is the upper line of the Bollinger Bands indicator on the four-hour chart. It is risky to keep longs in this price area – without additional information momentum, the pound is unlikely to settle in the area of the 27th figure.

You should also pay attention to the fact that on Friday the dollar actually ignored the slowdown in PCE growth. The annual core PCE inflation in the US fell to 4.9% after rising to 5.2% in March. In general, the indicator has been gradually decreasing for the second consecutive month – this may indicate that inflation has reached its peak values. By the way, in one of his speeches, Federal Reserve Chairman Jerome Powell focused his attention on this fact, in the context of indicating the further pace of monetary policy tightening. However, the dollar bulls did not "dramatize" the situation on Friday – partly due to the fact that the report was released at the forecast level, and the fact that the inflation indicator still remains at too high values (thereby justifying a further increase in the Fed's interest rate).

Therefore, in my opinion, corrective bursts of GBP/USD to the support level of 1.2660 or even to the borders of the 27th figure should be used to open short positions, with 1.2600 and 1.2570 as targets (the Kijun-sen line coinciding with the average line of the Bollinger Bands indicator on the H4 timeframe).