HomeContributorsFundamental AnalysisGBP/USD Jumps as Sunak Takes the Reins

GBP/USD Jumps as Sunak Takes the Reins

The pound has posted sharp gains today. In the European session, GBP/USD is trading at 1.1353, up 0.66%.

Will Sunak be up to the job?

Rashi Sunak is the new Prime Minister of the UK, the latest move in what has been a dizzying pace of political developments in the UK. Lizz Truss managed to stick around 10 Downing Street for a mere 44 days, after a mini-budget with unfunded tax cuts was a disaster and forced her to pack her bags. Sunak, a former finance minister, should fare better, but all agree that he faces an uphill battle in righting the leaky economy. Given all that has transpired over the past few weeks, if Sunak can re-establish a feeling of normalcy in the government, that will be a modest achievement.

The challenge for Sunak will be immense. Inflation is running at 10% and the weak UK economy may already be in recession. The most recent data shows consumer spending, manufacturing and business activity on the decline. The cost-of-living crisis is getting worse and real earnings are falling, which could lead to worker unrest.

Sunak has shown he is a capable politician but will need to keep the Conservative party united behind him if he is to succeed, with the opposition hoping they can capitalize on the political havoc and force a general election. The markets have reacted favorably to Sunak taking over as Prime Minister, as the British pound and UK gilts are higher today.

Next week will be anything but dull, as the government is scheduled to deliver a budget on October 31st and the Bank of England holds its policy meeting on November 3rd. With inflation showing no signs of peaking, the BoE is widely expected to deliver an oversize interest rate in order to curb inflation.  A 0.75% hike is most likely, although there is an outside chance of a supersize full-point increase.

GBP/USD Technical

  • GBP/USD tested resistance at 1.1373 earlier in the day. The next resistance line is 1.1471
  • There is support at 1.1266 and 1.1093

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