Sep 30, 2022
VOT Research Desk
Key Insights and Analysis
GBP/USD recovers on PM news, the chancellor’s meeting with the UK’s fiscal watchdog, and a surprise UK GDP beat for Q2 Cable recovers losses helped by fiscal accountability measures. The US PMI and NFP data are next.
GBP/USD Gains on News of PM’s Meeting with UK Fiscal Watchdog Liz Truss and Kwasi Kwarteng are scheduled to meet with the Office for Budget Responsibility, the UK’s fiscal watchdog, in response to the market dysfunction in UK assets over the past week.
By the end of October, the Treasury Select Committee, made up of MPs from all parties, demanded that chancellor Kwarteng provide the OBR’s complete economic forecast.
Even though a draft was made available from the OBR on the chancellor’s first day in office, no independent OBR forecast was included with Kwarteng’s mini-budget, which contributed to the volatile movements over the past week.
Technical Factors to Consider The 4-hour GBP/USD chart demonstrates that the recovery of the British pound has brought it back to levels seen in the early morning of last Friday, prior to the mini-budget that sent UK assets spiraling.
Oversight measures and a pronounced decline in the dollar have contributed to the improved situation in cable. Around 1.1410, which doubles as the 2020 low and the underside of trend line resistance, the pair encounters upside levels of resistance. The pair is currently trading near support at 1.1110, where a further decline in confidence could send it back to the 1985 level of 1.0550.
The longer-dated gilts issued by the UK appear to have stabilized, but the situation must still be closely monitored. If UK inc. makes any more mistakes, people may lose faith in the company, which could lead to more selling and the Bank of England intervening, which could hurt the pound once more.
The rather encouraging, albeit backward-looking data that GDP growth advanced 4.4% in comparison to Q2 of last year, despite a 2.9% forecast, contributed to the pound’s recent recovery. If the August CPI beat is any indication, dollar crosses could move in response to a positive or negative surprise in the data as we head into the weekend.
We will see US PCE inflation data later today. In anticipation of a further rise in perceptions there, the University of Michigan’s consumer sentiment report will present final figures for September.
The Institute of Supply Management’s manufacturing and services PMI data, in addition to the United States’ non-farm payroll data, which predict a 3.7% unemployment rate, will provide some US-focused data next week.
