GBP/USD uninspired by UK tax cuts, hot CPI, continues subdued trade in 1.3200 area

• UK Chancellor of the Exchequer Sunak’s announcement of new tax cuts has failed to give GBP a lasting lift.
• GBP/USD continues to trade in subdued fashion near the 1.3200 level after hot UK CPI also failed to lift sterling.

While the latest fiscal/tax policy announcements from the UK Chancellor of the Exchequer will certainly cheer up the British public, it has done little to cheer up pound sterling, which continues to underperform versus the majority of its G10 peers. Chancellor Rishi Sunak’s announcement of a fuel duty tax cut, a lift to the tax-free earnings threshold, a slight reduction to the tax rate for the bottom bracket and new support for businesses seemed not to impress FX market participants.

GBP/USD continues to languish near the 1.3200 level, broadly in line with its pre-Spring Statement announcement levels, with traders seemingly still very much of the view that the new policies won’t do much to improve the fairly weak outlook for the UK economy. That suggests the BoE is likely to stick to its new dovish line that only modest further monetary tightening “might” be appropriate in the months ahead.

At current levels in the 1.3190s, GBP/USD is trading with losses of about 70 pips or 0.5% on the session, with sterling also failing to garner impetus from higher-than-expected UK Consumer Price Inflation figures out earlier in the session. Headline UK inflation hit its highest in 30-years at 6.2% in February, more than expected. Attention now turns to remarks from BoE Governor Andrew Bailey, who will be appearing at a summit later in the day.