GBP: Relief for the British pound as the US dollar declines and a potential policy Belly flop

Oct 17, 2022
VOT Research Desk

Market Analytics and Considerations

GBP, USD, JPY/USD Exchange Rate, China, Crude Oil, Gold in View

As the US Dollar rested, the British Pound increased.

The markets seem prepared to penalize bad economic and fiscal policies.

A weaker US dollar and remarks over the weekend by the new Chancellor of the Exchequer, Jeremy Hunt, suggesting that planned tax cuts might be reconsidered provided some support for the British pound on Monday.

Sterling may face challenges this week due to political pressure on Prime Minister Liz Truss and the Bank of England’s decision to stop supporting the Gilt market.

Through the Asian session to begin the week, Treasury yields have decreased by a few basis points across the board. As a result, the US dollar is weaker as a whole. The Australian dollar has fared the best so far, trading above 0.6230.

The market remains concerned about possible intervention following some jawboning from officials, and as a result, the Japanese yen is the only currency that has not made gains against the “big dollar” today.

The USD/JPY pair is just below Friday’s 32-year high of 148.86.

On Sunday, the defiant speech that Chinese President Xi Jinping gave covered a wide range of subjects, including modernization, Taiwan, Hong Kong, common prosperity, the military, the environment, technology, and foreign policy.

Any modification to the financially crippling zero-case Covid-19 policy was glaringly absent. The equity indices Hang Seng and CSI 200 are lower, but it’s possible that this has more to do with Wall Street’s sell-off on Friday. Due to the disappointing news, iron ore is lower.

Futures indicate a steady start to the North American cash session, while the ASX 200 of Australia and the Nikkei 225 of Japan are also down on the day.

Gold and crude oil have gained a little against the weaker USD. While the Brent contract has cleared US$ 92 bbl, the WTI futures contract is above 86 bbl. the ounce of spot gold is close to US$ 1,650.

GBP/USD TECHNICAL GUAGE:

GBP/USD stabilized on Monday after retreating from weekend resistance levels. It’s possible that the resistance at 1.1405 and 1.1414 will continue.

The price has been circling the 10- and 21-day simple moving averages (SMA), which could indicate that directional momentum is uncertain in the near future. SMAs of 55 days and higher are all above the price and may indicate that bearish momentum is still present over the long term.

The previous lows of 1.0924 and 1.0354 may serve as support.

GBP/USD