Synopsis:

Sterling is showing strong performance, with GBP/USD expected to move towards 1.35, supported by positive market sentiment and potential fiscal changes.

Key Points:

1. Sterling's Resilience:

   • GBP/USD is on an upward trajectory, continuing to perform well against recent market dynamics.

2. Impact of Eurozone Data:

   • A significant drop in EUR/GBP was primarily influenced by disappointing eurozone PMI data for September.

3. Labour Party Conference Developments:

   • Comments from Chancellor Rachel Reeves hinting at potential loosening of fiscal rules could allow for increased investment.
   • Speculation about changing the accounting treatment for new institutions may unlock an additional £15 billion in borrowing.

4. Market Response:

   • UK sovereign CDS has remained stable, indicating that the proposed plans are being taken seriously without triggering significant concern.

5. Support for Sterling:

   • Current market conditions provide adequate support for GBP, and positioning is not excessively stretched.

Conclusion:

With a favorable outlook and ongoing discussions around fiscal policy changes, GBP/USD is likely to trend towards 1.35, benefiting from a softer dollar environment and positive sentiment surrounding potential investments.