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Pound Held Back By NI Increase

Pound Held Back By NI Increase

The pound had a quiet morning yesterday despite house prices increasing 0.7% in August and gradually drifted lower ahead of the New York open with markets focussing on fiscal policy (taxes).  Boris Johnson announced that National Insurance rates would rise to 13.25% from 12% and Dividend tax rates would rise. The reason given for breaking the manifesto pledge was to fund increased health spending in the short term and reform social care over the medium term. The announcement increased speculation that higher tax would undermine consumer spending and undermine the UK economic recovery which held the Pound back. 

Bank of England external Monetary Policy Committee member Michael Saunders reiterated that the economy no longer needs as much stimulus as previously and hinted that asset purchases should be curtailed once inflation is above 4% or risk increasing medium-term inflation and higher interest rates (to counter further down the line.) 

In level terms, the firmer dollar tone is reflected in EUR/USD opening this morning back below the midpoint of $1.1800-1.1900. GBP/ USD is changing hands near the halfway mark of the $1.3700- $1.3800 corridor. Meantime, EUR/GBP starts today at the 86p threshold.

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