EUR and GBP: US consumer spending will support GDP. A new bank tax was introduced in the UK
The European currency and the British pound continued to trade in a narrow sideways range on Monday. The euro’s rising potential was limited by news that German Chancellor Angela Merkel has announced the end of her political career. The pound also did not show much activity, gradually falling to monthly lows, as traders expect the decision of the Bank of England on interest rates and news on Brexit. The presentation of the budget plan in Parliament by the UK finance minister also did not lead to changes in the GBP/USD pair.
In the afternoon of Monday, data was released, which indicated that Americans had increased their spending in September due to income growth.
According to the report of the US Department of Commerce, personal expenses of Americans increased by 0.4% in September this year compared to the previous month, while personal income of Americans during the reporting period increased by only 0.2% compared to the previous month. Economists had expected growth of expenses at 0,4% and income growth of 0.3%.
Given the current indicators, we can safely talk about maintaining a positive momentum in the US economy. As noted in the report, most of the expenses were related to durable goods, especially the purchase of cars. Medical expenses have also increased.
The share of savings of American households in September was 6.2% against 6.4% in August, which also indicates the belief of Americans in the economy of their country. At the beginning of the year, this figure is at the level of 7.0%.
The issue of US government bonds this year may exceed $1 trillion.
According to the report of the US Treasury Department, the volume of debt securities issued in the 4th quarter of 2018 will be $425 billion, and in total for this year the issue will be equal to $1.338 trillion. This sharp increase is associated with a sharp increase in the budget deficit due to high public spending in the absence of growth in tax revenues. As you can see, the tax reform, which was proposed by the White House administration, has its negative sides.
According to the Federal Reserve Bank of Dallas, the index of business activity amounted to 29.4 points in October this year, while economists expected that the index will be 27 points. The production index fell to 17.6 points in October.
As for the technical picture of the EUR/USD pair, the pressure on the euro may increase significantly after the support breaks at 1.1370. Movement under this level will lead to the demolition of a number of stop orders of euro buyers, who gained long positions last Friday, and to update the lows of 1.1335 and 1.1300. The main goal of the bears will be to achieve support in the range of 1.1250 by the end of the month.
The UK and a new bank tax
Yesterday, the budget plan was presented to the British Parliament. British Finance Minister Hammond said that the era of austerity is coming to an end. UK GDP is expected to grow 1.6% in 2019 and 1.4% in 2020. By 2021, the growth will be 1.4%. Thus, the estimate was revised upwards.
Hammond also noted that public borrowing in the period from 2019 to 2020 will amount to 31.8 billion pounds, the budget deficit for the same period will be at around 1.4% of GDP.
As for the risks, according to the minister of finance, the agreement on Brexit can provide double support to the British economy and will increase public spending.
Hammond also announced changes in taxes. As it became known, the introduction of a tax on remote banking services is expected, which will come into force in April 2020. It is expected that this tax will add to the budget more than 400 million pounds per year.