- GBP/USD starts to correct from the lowest levels since 1985.
- The focus remains on the BoE and a new government.
GBP/USD is perched in the lower quarter of the 1.15 area following a firm correction from the lowest level since 1985 that was scored on Wednesday that was reached in the face of a worrying outlook for the British economy. UK politics are taking a bite out of the pound as investors weigh prospects of tax cuts under a new government as well as surging inflation.
GBP/USD fell to 1.1405 overnight while the DXY, an index that measures the greenback vs. a basket of currencies, surged to a fresh bull cycle high of 110.786, falling just shy of a weekly 2002 level. In this regard, the Bank of England will make for an important event as the UK faces months of astoundingly high inflation levels.
Despite a path of rate hikes, the warnings on growth over-rides any support for the currency at the same time that PM Truss's policies are not necessarily in line with investors’ needs nor bullish for the pound that is already down more than 15% against the dollar so far this year. The BoE meets next week and is expected to hike interest rates by 50 or even 75 basis points.
Ahead of the BoE, attention will turn to Truss' economic plans in the coming days. Markets will be on the lookout for how she intends to tackle soaring energy bills for households in particular with regard to government borrowing.
GBP/USD technical analysis
The price has moved in on the 2020 lows, taking on the lowest levels since 1985 from where a correction could be underway. The weekly M-formation is a bullish pattern that could result in a reversion towards the prior lows near 1.1760 in the coming weeks.