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The British pound is oversold, and news of an income tax raid could actually be supportive for the currency.
The pound to euro exchange rate (GBP/EUR) has reached oversold conditions and wily opportunists will see tactical buying opportunities.
The exchange rate has fallen 0.80% this week to reach a low of 1.1345, a level last seen in May 2023, as markets raised bets the Bank of England would soon quicken the pace it cuts interest rates in response to a constrictive budget being announced next month.
From a fair-value perspective, GBP/EUR is trading well below the mean and median consensus forecasts of the world's major investment banks.
Following this week's decline, the daily chart shows GBP/EUR has reached oversold conditions on a number of metrics: the Relative Strength Index has edged below 30. The rule is that when a reading falls under 30 an asset is considered oversold and has entered the rebound zone.
Above: GBP/EUR daily, with the RSI in the lower panel.
Likewise, the stochastic oscillator is below 20 and the pair has slipped below its bollinger bands, which indicates an exccessive deviation from the kind of momentum we would expect.
So, a recovery, or at least a distinct period of consolidation is being requested by the charts. This suggests some sideways action is in store at the very least. The more bullish amongst us would enter the market as buyers of sterling and look to benefit from a rebound.
We would imagine that any rebound from here is likely to be shallow as there is nothing in the stars to suggest we should fight the downtrend.
Given this, a recovery to 1.1410-1.1430 - previous range support - would be a rational expectation.