The pound pushed higher at the start earlier today but has given up all of these gains. GBP/USD is trading at 1.1293, down 0.03%.
Sunak takes over as PM
Rushi Sunak has become the new UK Prime Minister after Penny Mordaunt dropped out of the Conservative leadership race. Liz Tross beat Sunak for the leadership last month but her short tenure as Prime Minister was an unmitigated political disaster. Elizabeth Truss’s record of a mere 44 days in office caused financial damage as well, as her financial plan with unfunded tax cuts roiled the markets, with the pound taking a beating and the Bank of England intervening in an emergency move to stabilize the bond market.
Sunak, a former finance minister, will have his work cut out. The Conservative party remains deeply divided and will have to coalesce quickly or face a general election that it would likely lose. Sunak inherits a weak economy, high inflation and uncertainty over the UK’s direction in the post-Brexit era. Last week ended on a sour note, as retail sales for September declined by 6.9% YoY, down from -5.6% in August and below the consensus of -5.6%. Core retail sales also dropped sharply to -6.2%, down from -5.3% and well below the consensus of -4.1%.
The Bank of England can hopefully concentrate on more routine matters, such as its policy meeting on November 3rd. Inflation has climbed back into double digits and the Bank will have to deliver an oversize interest rate in order to curb inflation. This will slow the economy which may already be in recession. A 0.75% hike is most likely, although a full-point increase is a slight possibility.
GBP/USD Technical
- 1.1388 and 1.1471 are the next resistance lines
- 1.1266 is a weak support level. This is followed by 1.1093
