Boris Johnsons historic tax hike hurts the Pound

Yesterday British Prime Minister Boris Johnson unveiled plans to hike taxes on workers and employers in order to fix the health and social care funding plans.

What will the money go on?

Following huge spending across the pandemic Boris Johnson is now turning his attention to Britain’s social care system. As the UK population ages over the coming decades costs in this sector are expected to surge.

The PM is also looking to tackle the enormous waiting lists in Britain’s healthcare system after resources were focused on tackling covid across the past 18 months.

How much?

Ignoring uproar in his party, the PM outlined a 1.25% rise in National Insurance taxes paid by both workers and employers, as well as a 1.25% tax increase in shareholder dividends. This would raise £36 billion over 3 years. The UK will also have it largest ever peacetime tax burden at 35% of GDP.

Outlook for sterling

The Pound has been a strong performer across the year thanks to the rapid vaccine programme and fast economic rebound. However, concerns are rising that momentum is slowing amid the impact of Brexit, global supply chain issues and as covid cases start to rise again. Now add to the mix a higher tax burden and individuals and business could struggle to prosper. And let’s not forget that the furlough scheme is also due to expire at the end of the month. The outlook is starting to look considerable bleaker.

Meanwhile the US Dollar is finding its feet on safe haven flows. Concerns over the global economic recovery have seen equities tumble and the US Dollar rise. Goldman Sachs downgraded the US growth forecast for the second time over the weekend.

Learn more about the Pound

GBP/USD reaction

The Pound is less than impressed with Boris Johnson’s plans. Sterling trades at a six-week low versus the Euro. GBP/USD trades lower for the third straight session. GBP/USD trades below its 50 & 200 sma with the 50 crossing below the 200 sma in a death cross bearish signal.

The pair has broken below its multi-week ascending channel, whilst also falling back below the multi-month descending trendline.

The receding bullish bias on the MACD suggests that there could me downside on the cards.

Should the sellers take out the day’s low at 1.3750 the September low of 1.3731 comes into focus and 1.37 the round number.

On the upside, a close above 1.3790 the falling trendline resistance and the lower band of the rising channel could see buyers become more optimistic and aim for 1.3890 the September high.

How to trade with City Index

Follow these easy steps to start trading with City Index today:

Open a City Index account, or log-in if you’re already a customer.
Search for the market you want to trade in our award-winning platform.
Choose your position and size, and your stop and limit levels
Place the trade.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.