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Oct 16 - 10:55 PM

GBP/USD - COMMENT-Critical Period For Sterling With So Many Moving Parts

By Andrew M Spencer  —  Oct 16 - 09:50 PM

Sterling begins the week with a new UK finance minister, Prime Minister Liz Truss under pressure from her Conservative Party, a U-turn in some of her "trickle-down" tax cuts, and the Bank of England ending its backstop for the gilt market.

The pound bounced early on Monday after BoE Governor Andrew Bailey's weekend comment that there was an "immediate meeting of minds" when he spoke with finance minister Jeremy Hunt about the need to fix the public finances, and build market confidence after recent turmoil.

Hunt said on Saturday some taxes would go up and tough spending decisions were needed. As always, the devil is in the details: will markets give him the time he needs to outline a viable solution?

PM Truss faces pressure to keep her job after the turmoil of her unfunded tax-cut policies, which even U.S. President Joe Biden called a mistake.
Some Conservative lawmakers and certain parts of the UK press believe a replacement or an election is required.

An election is unlikely, as the Conservatives face defeat, with the Labour Party way ahead in the polls.
Sterling would likely bounce if an election is called.

Technically the daily charts show neutral signals with GBP/USD close to the midpoint of a choppy 1.0925-1.1493 range.
Pivotal levels are 1.0772, 61.8% of the September-October rise, and 1.1541, 61.8% of the August-September fall.

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Source:
Refinitiv IFR Research/Market Commentary

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