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Forecast for GBPUSD for 2 September 2020

September 2, 2020

September 2, 2020

Forecast for GBP/USD: Pound is threatened with taxesDmitri Demidenko

Fundamental forecast for pound for today

Britain’s unexpected toughening of fiscal discipline would be

unpleasant news for GBP/USD bulls

Having taken advantage of the USD’s weakness, the British pound easily reached the first of the two targets at $1.337 set in the [previous article][1] and almost got to the level of 1.35.  The reason for [GBP/USD][2]’s rise was the greenback’s prostration with the Fed’s new strategy of inflation control, not the pound’s strength. The [EUR/GBP][3] and [GBP/JPY][4] pairs confirm that: they usually trade in ranges. What’s more, a “thin” market isn’t a surprise in August, the holidays season. However, everything may turn upside down in September.

The pound has enough problems: double deficit, Brexit, fear of British QE expansion and tax hike rumours. The UK government debt reached £2 trillion for the first time in history. It frightened politicians so much, that the Budget Responsibility Committee had to make some calculations. According to them, the fiscal policy has to be toughened by £60 billion every ten years in order to have cut the debt from the current 100% of GDP to 75% of GDP by 2070. It’s rumoured in London that Treasury is planning to raise fuel, capital gains and corporation taxes and cut pension tax relief.

I think this is not the right time. The economy hasn’t recovered yet, while a tough fiscal policy may suffocate positive changes. Most likely, tax hikes will be delayed. If not, the pound will be sold on expectations of a slower-than-expected GDP growth.

In September, the pound will be most likely affected by Brexit and expectations of QE expansion at the BoE’s meeting on 17 September. Andrew Bailey said at Jackson Hole that negative rates were the Central Bank’s weapon that he wasn’t going to use. He also praised the QE program, whose efficiency soars during market perturbations. Let me remind you that Bailey cut REPO rate to its historic low at 0.1% and expanded QE by £300 billion, bringing the total QE scale to £745 billion. On the whole, the BoE’s and the ECB’s positions are similar: [EUR/USD][5]’s and [GBP/USD][2]’s rallies slow down inflation and provide for monetary policy’s softening.  It increases the risk of these pairs’ correction.

British QE

![LiteForex: Forecast for GBPUSD for 2 September 2020][6]

Source: Bloomberg.

At the same time, the USD’s medium-term and long-term prospects remain bearish. The PIMCO company, which has $1.92 trillion assets under management, believes that the greenback will continue to devalue because US full employment won’t return before 2024. It will force the Fed to keep rates near zero for a long time.  The trade-weighted USD index would lose 15-20% of its current levels on average during the previous bearish times.

Thus, taking a long position in the pound is wise despite its domestic trouble. As for [GBP/USD][2]’s correction, the situation will be clearer once the US August labour stats have been released.  Strong employment data will help bears to break the support levels at 1.33 and 1.3245.

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Price chart of GBPUSD in real time mode

![Forecast for GBP/USD: Pound is threatened with taxes][9]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. www.liteforex.com/blog/analysts-opinions/gbpusd-forecast-pound-stays-calm/
  2. my.liteforex.com/trading/chart?symbol=GBPUSD&returnUrl=true
  3. my.liteforex.com/trading/chart?symbol=EURGBP&returnUrl=true
  4. my.liteforex.com/trading/chart?symbol=GBPJPY&returnUrl=true
  5. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  6. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/uk-qe-02-09-20.jpg?w=30&s=051fbfbbd8862b83fc0c33dfb56a4d30
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  9. cdn.liteforex.com/cache/uploads/blog_post/fundamental_analysis/liteforex-blog-gbpusd-02-09-20.jpg?q=75&w=1000&s=6c17226db7327484671586cd5d5293c2