- GBP/USD set to open bid on UK politics and BoE noise.
- The BoE gov spoke on Saturday and said inflationary pressures might require a stronger interest rates response.
GBP/USD is set to open regular forex hours on the bid as indicated by pre-open markets in the Asia Pacific with the pair up over 0.9% into 1.1270s. Cable closed on Friday offered at 1.1177 and down 1.2%. As explained here, BoE Gov Bailey: Stronger rates response needed to fight inflation, GBP/USD back above 1.1230 pre-open, the Bank of England Governor Andrew Baily said on Saturday that inflationary pressures might require a stronger interest rates response from the central bank than it had envisioned in August.
"We will not hesitate to raise interest rates to meet the inflation target," Bailey said at an event on the sidelines of the International Monetary Fund Meetings in Washington.
However, the price would be weighed if markets continue the way they left off on Friday. As analysts at ANZ Bank explained, ''risk was firmly off in US markets as earnings results rolled in and the University of Michigan survey showed consumer inflation expectations rising for the first time in seven months.'' The analysts noted that ''the immediate market reaction to Truss’ tax U-turn was muted; Monday will bring the real test.''
Lizz Truss, the UK's new Prime Minister sacked her Chancellor Kwasi Kwarteng on Friday and then scrapped her plan to freeze corporate tax next year. “It is clear that part of our mini budget went further and faster than the markets were expecting,” she said.
''The initial market response wasn’t exactly a high five – GBP extended its losses, while 10-year gilts trimmed gains after Truss’ press conference. But the gilt market’s immediate concern is the cessation of BoE emergency bond-buying. Monday’s market action will provide a test, not only for the survival of Truss’ low-tax vision, but also her political future,'' the analysts at ANZ Bank explained.
Update:
The Daily Mail's front pages: ''Plot to Topple Truss This Week''
UK political uncertainty would be expected to be a weight on sterling.
UK CPI eyed
Meanwhile, the data this week will be key. UK inflation is on the cards and analysts at TD Securities expect the ''Consumer Price Index to once again enter double-digit territory after declining to 9.9% YoY in August, as further strength in core and food inflation likely more than outweighed another large decline in petrol prices. Looking ahead, we think September will finally mark the peak in core inflation, while headline should peak in October after the next energy price cap update.''
GBP/USD technical analysis
GBP/USD is trading at 1.1270 in pre-open markets, up 0.9%. Impossible to draw a technical analysis on such a move but the price will have broken trendline structures. However, if the gap were to be filled and if 1.1150 gives, 1.1050 will be eyed. A break of 1.1280 would be significant on the upside.
