FX.co ★ Pound rises on good news over UK's annual budget

Pound rallied on Tuesday amid news that the UK government saved about £26 billion last year. This budget will most likely be used to improve the economy this year, especially since it is now going through hard times.

The report released yesterday indicated that the UK budget deficit for the first 11 months of the financial year was £26 billion below official forecasts. Many expect that the difference would be larger with the release of full-year data next month, which will give more room to tackle the nation's deepening crisis.

The extra $34 billion will be a good help for the struggle, not with a crisis in the economy, but with a crisis in the cost of living in the UK, which has recently exceeded all conceivable and unthinkable limits. Very high inflation is to blame for all of this.

The UK government is also forced to protect households and businesses from skyrocketing food and energy bills, which aggravated because of the military operation in Ukraine and sanctions imposed by the UK. The tax hike, which came into force in a few days, will also make life even more difficult for businesses and households.

In his recent speech, Sunak vowed to clean up public finances after they have ballooned as the country battles the coronavirus pandemic. "The ongoing uncertainty caused by global turmoil means that it is now more important to manage public finances responsibly. Given that inflation and interest rates are still rising, it is imperative that everything be done so as not to burden future generations with even more debt," he said.

As noted above, the spike in inflation threatens to undermine public finances, which could lead to a recession. About a quarter of the public debt is linked to the RPI inflation rate, which has risen to a 30-year high. This surge brought debt service spending between April and February to £67 billion, which is £ 29.5 billion more, or 80% more than in the same period a year earlier.

Technical picture of the GBP/USD pair

To continue the growth of pound, bulls need to protect 1.3250, as well as break above the base of the 33rd figure. But if 1.3250 is broken, the nearest major supports will be 1.3200 and 1.3160. In that case, the bull market will resume only after the breakdown of 1.3300. That will lead to a rush to 1.3340 and 1.3390.

Technical picture of the EUR/USD pair

Geopolitical tensions in Ukraine remain high, and the prospects for further strengthening of risky assets are fading away. Given the aggressiveness of the Fed's policy, it is best to bet on the further increase of dollar. As such, euro buyers need a return above 1.1050 in order for the pair to rise to 1.1090 and 1.1140. Meanwhile, a further decline will be met by active purchases in 1.1000. However, 1.0960 remains the key support level.