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The UK government has announced a new program to stimulate the British economy. It will amount approximately $ 38 billion, and will be used to support the country during the quarantine period. It will be implemented until October of this year, after which the emergency measures will be curtailed, depending on how fast the economy recovers.
At the very beginning of the coronavirus pandemic, the British government has resorted to a number of measures in order to help companies and the public. Taxes were reduced and wages were paid partially, which reduced part of debt burden from companies and businesses. Finance Minister Rishi Sunak said that the actions of the government are aimed at making people feel confident enough during the pandemic, which will become a driver for economic growth in the future. At most, payments will be given to companies that will not dismiss workers that were previously sent on unpaid leave due to the pandemic, as well as to companies that will create more jobs and hire employees. An additional reduction in the tax burden will also affect restaurants and the hotel industry.
The new program will cost the government a total of £ 30 billion, but it will not end there, as another stimulus measure may be announced in autumn. According to statistics, programs that were introduced from June 29 to July 5 amounted to £ 9.4 million, while for the week of June 22 to 28, expenses were at £ 9.3 million. The report published by the UK Bureau of Fiscal Responsibility revealed that the measures taken to support businesses and households amounted to £ 132.6 billion.
Against this background, the British pound continued its rise against the US dollar, simultaneously ignoring the risks associated with Brexit. Apparently, large investors benefit only when the market remembers the problems related to Brexit.
There are also discussions around the market that the stimulus measures introduced in the UK are not significant. Many believe that the allocated funds will not be enough for the economy to receive the support it needs for a full recovery, and given the likelihood of a 25% contraction in the UK GDP, such talk is very justified. In addition, it is very obvious that recovery is not possible without the necessary support from the Bank of England, thus, the bullish mood of the pound which was observed this week will most likely slow down after the upcoming news from the British government, in which no new decisions were made.
As for the risks and uncertainty surrounding the trade negotiations between the European Union and the United Kingdom, nothing has been concluded again, which clearly does not add positivity both on the economy and the British pound. If an agreement is not reached before the end of this year, the EU will introduce full customs control in the beginning of 2021. This means that Brexit will face a tough scenario, which will be another blow to the UK economy.
Thus, for the technical picture of the GBP/USD pair, a breakout from the resistance level of 1.2625 will lead to a further rise of quotes in the area of highs 1.2690 and 1.2760. But, if bullish activity is absent on that level, the quotes will return to its previous range and could decrease even further in the trading chart. The nearest support level will be the level of 1.2520, a break of which will lead to sell-offs in the area of 12430.
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