Fiscal Matters At The Fore For GBP

Cable now trades a handful of pips softer on the day, with the DXY paring its overnight losses into London hours, leaving the rate just above $1.3830. In all honesty there has been a lack of tier 1 macro headline catalysts observed during Asia-Pac hours, with the broad DXY turning bid in the wake of the latest RBA decision.

• Most of the focus in the overnight UK press fell on suggestions that UK PM Johnson is set to force through a national insurance hike which will rake in more than GBP10bn per annum as he looks to address social care and healthcare issues that have been made more apparent in the wake of the COVID outbreak. Still, it is a contentious proposal, and Johnson risks losing support in former Labour heartlands (the "red wall") which he famously took in the '19 election. It also risks denting the post-COVID economic recovery in the UK via the consumption channels.
• A reminder that the rate struggled as the DXY nudged higher during U.S. holiday-thinned Monday trade, with the USD adding modestly to Friday's post-NFP rebound. Monday also saw comments from BoE newbie Catherine Mann, who played down any comparisons between the present day and 1970's style inflation.
• Our technical analyst has outlined short-term bullish conditions for the rate, with the recovery from the August 20 lows extending. Initial resistance is seen at Friday's high ($1.3892), with the August 4 high ($1.3958) providing the next level of interest above there. Support is seen at the 20-day EMA ($1.3791), followed by the September 1 low ($1.3731).
• There are no notable option expiries to be concerned with re: the pair at today's 10AM NY cut.
• An address from BoE's Saunders headlines the local UK docket on Tuesday, while there is only lower tier UK data scheduled.