GBP/USD grinds higher past 1.1300 amid British political plays ahead of UK/US PMIs
- GBP/USD prints three-day uptrend amid cautious optimism in the UK, volatile markets elsewhere.
- Boris Johnson’s retreat helps Rishi Sunak to aim for the PM candidature due to economic knowledge, public trust.
- UK/US S&P Global PMIs for October will offer intermediate moves but UK politics, US GDP is crucial for clear directions.
GBP/USD prints mild gains around a one-week high while posting a three-day uptrend during Monday’s Asian session. That said, the Cable pair recently eases to 1.1330, following the early-day jump to 1.1410.
The quote’s previous run-up could be linked to the optimism in the UK amid the higher odds of Rishi Sunak’s likely victory in the race for British Prime Minister. “Rishi Sunak looked set to become Britain's next prime minister after Boris Johnson withdrew from the contest on Sunday, saying that although he had enough support to make the final ballot he realised the country and the Conservative Party needed unity,” said Reuters.
The news also quotes Boris Johnson as saying that he had secured the backing of 102 lawmakers and could have been "back in Downing Street", but that he had failed to persuade either Sunak, or the other contender Penny Mordaunt, to come together "in the national interest".
With this, GBPUSD portrays the higher hopes from Rishi Sunak due to his sound economic knowledge and the latest fiscal fiasco, which Sunak aptly anticipated.
It should be noted, however, that the global rating agency Moody’s negative outlook on the UK, from stable, challenge the pair buyers amid the broad US dollar rebound.
Chatters surrounding Japan’s meddling in the market to defend the yen appeared to have triggered the DXY’s latest rebound. Elsewhere, the news that Both North and South Korea have exchanged warning shots near their disputed western sea boundary, published on Monday, also seemed to have favored the US dollar buyers of late. On the same line could be the fears that China President Xi Jinping won’t hesitate to escalate geopolitical matters with the US when it comes to Taiwan. The reason could be linked to Jinping’s dominating performance at the annual Communist Party Congress after winning the third term in a row.
On Friday, St. Louis Fed President James Bullard said, “I want rates that put significant downward pressure on inflation.” On the same line, Chicago Fed President Charles Evans stated that they will need to raise rates further and hold them for a while. However, Nick Timiraos, Chief Economics Correspondent at The Wall Street Journal (WSJ) wrote that the Federal Reserve officials are barreling toward another interest-rate rise of 75 bps at their meeting in November and are likely to debate then whether and how to signal plans to approve a smaller increase in December.
Against this backdrop, the US equities posted the largest weekly gains in four months while the US 10-year Treasury yield marked a 5% weekly gain while refreshing a 14-year high, despite posting mild losses on Friday. Also, the CME’s FedWatch Tool suggested a nearly 88% chance of the Fed’s 75 bps rate hike in November, after posting nearly 95% odds for the outcome earlier in the week. It should be noted that the S&P 500 Futures print 0.60% intraday gains by the press time.
Looking forward, the UK politics will be in focus but major attention will be given to the preliminary readings for the UK/US PMIs for October. Also important will be the US Gross Domestic Product for the third quarter (Q3), up for publishing on Thursday.
To sum up, receding political uncertainty in the UK seems to help the GBP/USD pair of late but the bulls need conviction.
Technical analysis
GBP/USD buyers need validation from the 50-DMA hurdle, around 1.1420 by the press time, to extend Friday’s breakout of a six-week-old resistance line, now support around 1.1295.