The GBP/USD is down this Thursday after new UK Prime Minister Liz Truss came out in defence of her economic plans, which recently caused a market upheaval that warranted intervention from the Bank of England on Wednesday. The BoE had intervened and started to purchase UK Gilts after it emerged that the Pound’s collapse and the market upheaval was close to bankrupting several pension funds.
The UK PM said the massive tax cuts were the right pathway for the UK and ruled out reversing the mini-budget rolled out on Friday by Chancellor of the Exchequer Akwasi Kwarteng. The mini-budget triggered a selloff in the GBP/USD, sending it to new record lows.
The GBP/USD briefly bounced following the intervention of the Bank of England, which said it would buy 65 billion pounds of long-term government bonds (Gilts). The pair bounced on Wednesday following the announcement. This recovery has since stalled at the 1.09246 resistance formed by the prior high of 26 September.
An additional fundamental trigger for the pair comes up on Friday, when the Federal Reserve’s inflation barometer, the Core PCE Price Index (m/m), hits the newswires. The outcome could have implications on bets for additional rate hikes in the US and also on the direction of the GBP/USD.
The stall of the price action at 1.09246 and subsequent decline on the day keeps the pair under pressure. However, the bears need to overcome the bullish pushback to target the recent low of 27 September at 1.06509. The 28 September low at 1.05452 forms a further downside target for the bears. The 26 September low at 1.03958 could become a harvest point for the bears once more if the price deterioration continues.
On the other hand, the bulls need to force a break of 1.09246 to extend the recovery. This recovery push would have clear skies to aim for 1.12332 (22 September low). A further advance brings 1.14538 (20 September high) into the mix. There is the potential for the bulls to make 1.15921 (2/14 September highs) an additional harvest point if sentiment on the Pound improves.
This post was last modified on Sep 29, 2022, 14:09 BST 14:09