U.S. Dollar Attempts a Recovery; UK Reacts to New Budget

Investors in the UK are relieved yesterday’s budget did not see a similar reaction to the one back in September. The UK released its latest mini-budget, which included a range of tax increases and spending cuts. Since the announcement, the pound sterling came under pressure from a rise in the US dollar but has since fully corrected.

UK Mini-Budget and the GBP

The mini-budget was clearly not aimed at inflation, the cost of living, and energy prices, all concerns at the top of citizen's lists. The mini-budget was aimed at mainly satisfying British Bonds and the pound investors.

According to the Office of Budget Responsibility, the UK economy is expected to instantly fall into a recession and decline by 1.4% in 2023, with inflation remaining firmly above 7%.

GBP/USD price chart.

The US dollar and US Stocks

The US dollar was supported by comments made by members of the FOMC, such as Governor Mester and Jefferson. The dollar was supported by senior members confirming that even though they may consider a lower rate hike, it does not mean there will be a change in the terminal rate. The FOMC members also made it very clear that they will not cut rates any time soon.

The US dollar increased in value by 1.40% against the GBP, 0.83% against the euro, and 0.98% against the yen. However, the dollar could not hold onto gains against the pound and euro as the exchange rate fully corrected shortly after.

Lastly, the US stock market continues to move within a retracement but has not seen enough momentum to give indications of a downward trend. The stock market has also come under slight pressure from a poor-performing cryptocurrency market, which has affected investors' risk appetite.

Visa (NYSE:V) specifically came under specific pressure as it signed an agreement with FTX a month ago to issue debit cards with support in 40 countries around the world. However, analysts believe the stock may rise slightly due to its positive earnings.

Crude oil View

During yesterday’s market analysis, we discussed crude oil's descending triangle. A descending triangle pattern is known to be a bearish signal, but as explained yesterday, investors were looking for a bearish breakout.

The breakout took place at $83.55 and triggered the price to decline by a further 2.88%. The price is now hovering at $81.87, and traders are waiting for a further breakout to obtain further signals potentially.

Crude oil price chart.

The downward trend was primarily fuelled by poor economic data from China, which is a big buyer of crude oil. The Chinese property market has already declined over the past few months.

However, Moody's (NYSE:MCO) experts have advised that the Chinese Property Market will decline between 10-15% throughout 2023. The Chinese government also confirmed another increase in COVID-19 cases, having investors worried another lockdown might be on the horizon.

In addition, the price came under pressure from recession talk from the UK Chancellor. The UK is the 11th highest importer of crude oil.

The price also slightly declined as NATO and Russia both confirmed that the missile which hit Poland was not Russian-made nor came from Russia.

Lastly, crude oil inventories had significantly declined, which can slightly support the price of oil, but Gasoline inventories increased by more than 2 million barrels. The rise in gasoline stock is known to pressure the oil price.