Jump to content

Liz Truss Announced as Next UK Prime Minister, GBP Unchanged


Recommended Posts

GBP/USD, EUR/GBP ANALYSIS AND TALKING POINTS

  • Liz Truss Announced as Next UK Prime Minister
  • No More Fiscal Policy Vacuum to Weigh on GBP

Liz Truss Announced as Next UK Prime Minister, GBP Unchanged

Liz Truss has been announced as the next UK Prime Minister with 57% of party votes and will be the third PM in six years. In terms of proceedings, Liz Truss will officially become Prime Minister tomorrow, providing a speech Tuesday afternoon.

This will offer some good news for the Pound now that the UK will be out of this fiscal policy vacuum. In recent weeks we have seen UK government bonds and the GBP sell-off aggressively (maybe part of this reflects political risk premium being priced in), which is similar to how an EM currency would trade. That said, over the weekend, UK press reports noted that Liz Truss is considering freezing energy bills. Allies say to expect a shock and awe moment to tackle the cost of living crisis. Elsewhere, Liz Truss has also clarified her stance on the Bank of England, reaffirming the importance of their independence and rowing back some of her tough rhetoric around BoE reforms.

As such, now that fiscal policy measures are just around the corner, the period of GBP underperformance may have peaked for the time being. Consequently, while GBP sentiment is through the floor, there is perhaps a case for a modest mean reversion in GBP crosses, particularly against the Euro as opposed to the USD as it is difficult to bet against the greenback. A reminder that last week saw the largest weekly rise in EUR/GBP since May.

On the technical front, key topside hurdles are situated from 0.8670-0.8720. Meanwhile, rate differentials also point towards lower EUR/GBP. The view of lower EUR/GBP would be reassessed should the cross break above 0.8730-35.

EUR/GBP CHART: WEEKLY TIME FRAME

Liz Truss Announced as Next UK Prime Minister, GBP Unchanged

 

Sep 5, 2022 | DailyFX
Justin McQueen, Strategist

Link to comment

Pound Forecast: GBP Buoyed by New Prime Minister Optimism

Pound Forecast: GBP Buoyed by New Prime Minister Optimism

POUND STERLING: EUR/GBP, GBP/USD ANALYSIS

  • New prime minister has her work cut out for her – inflation, energy and economic contraction
  • EUR/GBP update: Bullish fatigue sets in as GBP attempts recovery. ECB on Thursday
  • GBP/USD bounces off low on new PM optimism

 

 

NEW PRIME MINISTER INHERITS A MASSIVE UNDERTAKING

A number of recent developments have helped the pound bounce from its lows but the idea of a sustained bullish move is a tough one to get behind.

Markets appear to endorse with the appointment of Liz Truss as leader of the ruling conservative party, who is to be officially appointed as the UK’s new prime minister later today. The pound has mounted some resistance against what an awfully long period of sterling declines with very little good news on the horizon.

Truss ran a campaign that made strong promises to support households through this time of soaring inflation with tax breaks cited as one of the mechanisms of easing the current cost of living crisis. Reducing taxes appears attractive in the short-term but has concerning long-term implications like a sustained level of high prices due to people have greater disposable income. The UK has also watched its debt-to-GDP ratio go from 80% before the pandemic to nearly 100% as a result of pandemic-related stimulus.

Nevertheless, UK citizens are anticipating an 80% rise in household bills this winter meaning Truss’ plans to freeze household energy bills for 18 months couldn’t come at a better time. In addition, the new prime minister has further plans in the region of 40 billion pounds to assist businesses with rising energy costs. Therefore, the promises of relief to households and businesses is likely to support the pound in the short-run but the major issues of inflation (10.1%) and the anticipated recession will provide an uphill battle for the newly formed government and the pound.

 

Full article: Sep 6, 2022 | DailyFX
Richard Snow, Analyst

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      20,097
    • Total Posts
      88,164
    • Total Members
      69,084
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    Sygna
    Joined 04/10/22 07:17
  • Posts

    • Early Morning Call: end of oversized interest rate hikes in sight? Europe expected up after a strong start to Q4 globally. ASX 200 up strongly after RBA raised rates only 25bps. AUD meanwhile on the way down after RBA's decision while USD sees steepest 4-day loss since July 2020.    Jeremy Naylor | Writer, London | Publication date: Tuesday 04 October 2022  Macro overview It was a positive start of the month for US indices. The Dow Jones closed yesterday’s session up 2.66%, the S&P 500 rose 2.59%, and the Nasdaq Composite by 2.27%. The Asia-Pacific region followed suit, with Australia’s S&P/ASX 200 outperforming the region as the Reserve Bank of Australia (RBA) raised interest rates by 25-basis points (bps) to 2.6%. If this makes it the highest level in more than nine years, the market was expecting a 50 basis-point hike. The move benefited the equity market but affected the Australian dollar. AUD/USD fell as much as 1% at the announcement before paring some losses. Rates are expected to increase further. The RBA repeated its commitment to bring inflation down to target levels. Inflation is still too high and should remain so for months to come. The bank expects consumer inflation to rise about 7.75% in 2022, above 4% in 2023, and around 3% in 2024. Elsewhere, several Fed presidents and board members' speeches are expected today, among them Cleveland Fed president Loretta Mester, San Francisco Fed president Mary Daly, and New York Fed chief executive John Williams. Yesterday, Williams already said that while they can see growing signs of cooling inflation, underlying price pressures remain too high: "Clearly, inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential. Tighter monetary policy has begun to cool demand and reduce inflationary pressures, but our job is not yet done." Williams did not share his views on what the next Federal Reserve (Fed) rate hike should be. Many are speculating that the Fed will again hike by 0.75 percentage points. The US dollar remains on the back foot this morning. The US Dollar Basket retreated yesterday for a fifth consecutive day. This benefited commodities, and especially precious metals: gold now trades just below $1,700, platinum gained $60 in yesterday's session, and silver hit a three-month high. At 10am producer price index in the Eurozone is expected to accelerate in August. Economists see a month-on-month (MoM) increase of 4.9%, after 4% in July. The year-on-year (YoY) rise is forecast to reach 43.1%. In the US, factory orders are expected to rise by 0.3% in August on a month-on-month basis. Equities overview Elsewhere on the equity market, Greggs PLC said in a trading statement its sales rose 14.6% in the third quarter (Q3), adding its full-year (FY) outcome will be in line with expectations. Investors will remain attentive to Credit Suisse Group AG (CH). Shares of the Swiss bank recovered their losses and ended yesterday’s session down around 1% after a big market rally. The stock had dropped as much as 10% at the start of trading after the Financial Times reported the Swiss bank's executives are in talks with its major investors to reassure them amid rising concerns over the lender's financial health. Commodities Oil prices are on the rise this morning, and the market is waiting for tomorrow's OPEC+ ministerial meeting in Vienna, where members will be discussing output cuts that could go above one million barrels per day (bpd). Last month the organisation cut production by 100,000 bpd, signalling it would do what it takes to maintain oil price stability. In September, oil prices retreated for a fourth straight month.     This is here for you to catch up but if you have any ideas on markets or events you want us to relay to the TV team we’re more than happy to.
    • To a degree it depends on the outlook for other currencies and so the record low GBP has recently hit vs USD (post-decimalisation) is just one area to witness. IGTV caught up with Ron William from RW Advisory. GBP          
    • The Reserve Bank of Australia continued to hike rates for the sixth consecutive month, taking the cash rate to 2.60%, the highest level since 2013. Source: Bloomberg   Forex Indices Australia Inflation ASX Relative strength index Hebe Chen | Market Analyst, Melbourne | Publication date: Tuesday 04 October 2022  The Reserve Bank of Australia continued to hike rates for the sixth consecutive month by 25bps, pushing the cash rate to 2.60%, the highest level since 2013. Since May 2022, Australia’s cash rate target has risen 2.25%, comparable to 1994 when interest rates rose 2.75% in five months. Source: ABC/RBA In their official statement, the RBA reiterated its commitment to bring Australia's inflation rate back down with further increases. Phillip Lowe stated, “The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that." ASX 200 Following Wall Street’s rally to kick off the new month, the Australian stock market also enjoyed the best day in three months on Tuesday. A gain of more than 2.5% has helped the ASX 200 to break through the steep descending trend line and escape the lowest point of the year. Looking ahead, for the price to consolidate, the short-term bull-biased momentum, the level of 6574 will be a key level to watch. If an attempt to overcome this level fails, we could expect the price to retest the 6462 level. On the flip side, once the imminent hurdle is cleared, the door will be open for the ASX to touch the 20-day MA since mid-September. Source: IG AUD/USD AUD/USD has been hovering around the 0.6458 level as the 38.2% Fibonacci retracement area appears to be strong support. As the Relative Strength Index (RSI) is recovering from the oversold territory, the Aussie currency may stage further towards the next destination, where the 20-day MA sits, at around 0.66. However, the July low at 0.6697 could limit the sky for such a rebound. In that case, the pair will resume the downtrend as another lower high will be painted. Source: IG
×
×
  • Create New...