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Sterling Bounces Back After Tax Hike Worries

Sterling Bounces Back After Tax Hike Worries

Sterling strengthened yesterday despite the tax hike worries alongside the European Central Bank (ECB) announcing its intention to begin slowing down the pace of its pandemic bond buying programme.

The pound had touched a two-week low against the dollar on Wednesday and hit its weakest versus the euro since late July when the tax plan was formally announced on Tuesday. British lawmakers backed Prime Minister Boris Johnson late on Wednesday, while comments by Bank of England Governor Andrew Bailey put the pound on a recovery track.

Higher taxes could theoretically ease pressure on the Bank of England to begin tightening monetary policy as they might slow down the pace of the economic recovery. However, a number of analysts and economists believe that the impact of the measures will be limited and far from significant for the currency.

In level terms, GBP/EUR traded around the 1.1650 area before rising above the 1.17 mark. Cable (GBP/USD) also rose and headed towards 1.3850. Meanwhile, EUR/USD again found itself hovering just above the 1.18 mark shortly before the European session close.

Data wise, a somewhat quiet day with US Production and Canadian unemployment due. ECB President Christine Lagarde is also holding a press conference at the Eurogroup meeting in Slovenia with her speech being closely watched by market analysts.

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