Truss out as UK Prime Minister. What’s next for GBP/USD?
Liz Truss is out as Prime Minister of the UK. Whoever is selected as the next PM surely will not make the same economic mistakes that cost Truss her job. Therefore, the focus for the Pound will turn back to the Bank of England.
Share this:
Liz Truss resigned as Prime Minister of the UK on Tuesday, just 44 days after she replaced former Prime Minister Boris Johnson. She resigns after her failed economic package sent the British Pound to the lowest level ever vs the US Dollar and 30-Year Gilt yields above 5%. The BOE intervened and saved the economy, but it wasn’t without a cost. GBP/USD is down over 2.5% since Truss took over, however there was plenty of volatility in between as it traded between 1.0357 and 1.1738 over that period. The FTSE also has lost nearly 5% during her tenure. For a complete run down as to how the next Prime Minister will be selected, see my colleague Rebecca Cattlin’s preview here.
GBP/USD has been moving aggressively lower in an orderly downward sloping channel since April 22nd, when the pair broke below 1.3000. On the day that former Chancellor Kwasi Kwarteng announced the now infamous “mini-budget”, GBP/USD broke the bottom trendline of the channel and traded from a high of 1.1274 down to 1.0834. The markets assessed the situation over the weekend and determined that the budget was worse than initially thought. GBP/USD reached a low of 1.0357 as the BOE entered and saved the bond market. Over the next 6 trading days, the pair bounced to the 61.8% Fibonacci retracement level from the highs of August 10th to the lows of September 26th near 1.1500. Since then, markets have been oscillating between 1.0930 and 1.1495.
Source: Tradingivew, Stone X
Given the reaction to the news that Truss would resign, the market seems to have priced in the possibility of this event happening. On a 30-minute timeframe, GBP/USD was heading bid into the announcement from a low on the day at 1.1171 to a high just before the announcement at 1.1290. However, as the announcement was made, price spiked to 1.1305 and traded lower during the next 30 minutes to 1.1250. Buy the rumor, sell the fact. (GBP/USD traded higher later as the US Dollar was selling off).
Source: Tradingivew, Stone X
What happens next to the Pound may not depend so much on who the next PM will be, but rather what the Bank of England does at its next meeting. The new PM will surely not make the same mistakes as Truss did with her economic plan. Therefore, the focus will turn back to Monetary Policy. The Bank of England meets again on November 3rd. With inflation at 10% and the current cash rate at 2.25%, markets are expecting a rate hike between 75bps and 125bps! GBP/USD should move higher into this announcement. The pair has recently broken sideways out of a flag pattern; however, it is still valid as long as it doesn’t trade below 1.0930. The target for the flag is near 1.2075. If GBP/USD is to get there, it must first pass through prior highs on October 4th at 1.1487 and the 61.8% Fibonacci retracement level from the daily timeframe at 1.1543. Above there, horizontal resistance is at the highs of September 13th at 1.1738, then the flag target near 1.2050. However, if the resistance holds and price moves lower, the first support is at 1.1152 then the flag lows near 1.0931. Below there, GBP/USD could fall all the way back to the all-time lows at 1.0357.
Source: Tradingivew, Stone X
Liz Truss is out as Prime Minister of the UK. Whoever is selected as the next PM surely will not make the same economic mistakes that cost Truss her job. Therefore, the focus for the Pound will turn back to the Bank of England. How much will the BOE hike when it meets on November 3rd. Could it be as much as 125bps? If the markets believe that the BOE will be hawkish heading into the meeting, watch for the possibility of GBP/USD to head higher!
Liz Truss resigned as Prime Minister of the UK on Tuesday, just 44 days after she replaced former Prime Minister Boris Johnson. She resigns after her failed economic package sent the British Pound to the lowest level ever vs the US Dollar and 30-Year Gilt yields above 5%. The BOE intervened and saved the economy, but it wasn’t without a cost. GBP/USD is down over 2.5% since Truss took over, however there was plenty of volatility in between as it traded between 1.0357 and 1.1738 over that period. The FTSE also has lost nearly 5% during her tenure. For a complete run down as to how the next Prime Minister will be selected, see my colleague Rebecca Cattlin’s preview here.
GBP/USD has been moving aggressively lower in an orderly downward sloping channel since April 22nd, when the pair broke below 1.3000. On the day that former Chancellor Kwasi Kwarteng announced the now infamous “mini-budget”, GBP/USD broke the bottom trendline of the channel and traded from a high of 1.1274 down to 1.0834. The markets assessed the situation over the weekend and determined that the budget was worse than initially thought. GBP/USD reached a low of 1.0357 as the BOE entered and saved the bond market. Over the next 6 trading days, the pair bounced to the 61.8% Fibonacci retracement level from the highs of August 10th to the lows of September 26th near 1.1500. Since then, markets have been oscillating between 1.0930 and 1.1495.
Source: Tradingivew, Stone X
Given the reaction to the news that Truss would resign, the market seems to have priced in the possibility of this event happening. On a 30-minute timeframe, GBP/USD was heading bid into the announcement from a low on the day at 1.1171 to a high just before the announcement at 1.1290. However, as the announcement was made, price spiked to 1.1305 and traded lower during the next 30 minutes to 1.1250. Buy the rumor, sell the fact. (GBP/USD traded higher later as the US Dollar was selling off).
Source: Tradingivew, Stone X
What happens next to the Pound may not depend so much on who the next PM will be, but rather what the Bank of England does at its next meeting. The new PM will surely not make the same mistakes as Truss did with her economic plan. Therefore, the focus will turn back to Monetary Policy. The Bank of England meets again on November 3rd. With inflation at 10% and the current cash rate at 2.25%, markets are expecting a rate hike between 75bps and 125bps! GBP/USD should move higher into this announcement. The pair has recently broken sideways out of a flag pattern; however, it is still valid as long as it doesn’t trade below 1.0930. The target for the flag is near 1.2075. If GBP/USD is to get there, it must first pass through prior highs on October 4th at 1.1487 and the 61.8% Fibonacci retracement level from the daily timeframe at 1.1543. Above there, horizontal resistance is at the highs of September 13th at 1.1738, then the flag target near 1.2050. However, if the resistance holds and price moves lower, the first support is at 1.1152 then the flag lows near 1.0931. Below there, GBP/USD could fall all the way back to the all-time lows at 1.0357.
Source: Tradingivew, Stone X
Trade GBP/USD now: Login or Open a new account!
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Liz Truss is out as Prime Minister of the UK. Whoever is selected as the next PM surely will not make the same economic mistakes that cost Truss her job. Therefore, the focus for the Pound will turn back to the Bank of England. How much will the BOE hike when it meets on November 3rd. Could it be as much as 125bps? If the markets believe that the BOE will be hawkish heading into the meeting, watch for the possibility of GBP/USD to head higher!
Learn more about forex trading opportunities.
Related tags:
Open an account in minutes
Experience award-winning platforms with fast and secure execution.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
Nasdaq 100 Outlook: Slingshot rally or false dawn?
Nasdaq 100 futures are threatening to reclaim the 200-day moving average following their largest initial breakdown in more than 26 years. History suggests getting back above it is one thing, staying there another.
USD/JPY, USD/CAD Outlook: Fed hawks put dollar bulls on alert
Hotter US inflation and hawkish Fed commentary have triggered a sharp repricing of interest rate expectations. USD/JPY and USD/CAD are in focus as the dollar's sensitivity to Fed policy strengthens.
Gold Feels the Weight of USD, Yields on Hawkish Fed and CPI
Gold remains under pressure as hot US CPI, rising Treasury yields and hawkish Fed commentary support the US dollar. Bears eye another break below $4,000
The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.