- Pound reversal from 1.1645 extends below 1.1500.
- British pound loses ground as Sunak effect wanes.
- The dollar appreciates ahead of the Fed’s monetary policy meeting.
The reversal of GBP from last week’s highs at 1.1645 it accelerated on Monday, reaching levels below 1.1500. The pound is on the defensive at the start of the week against a stronger dollar ahead of the Fed policy meeting.
British pound resumes its downward trend as the Sunak effect diminishes
The positive impact caused by the appointment of Rishi Sunak as British Prime Minister last week, which took the pound sterling to its highest levels in six weeks, seems to have diminished. Considering the challenges ahead for the new cabinet, a sustained GBP recovery was highly unlikely,
Beyond that, the focus this week has shifted to the US Federal Reserve’s monetary policy meeting. The bank is expected to make its fourth consecutive rate hike of 0.75% next Wednesday. , which is stimulating demand for the US dollar.
The Bank of England is also expected to make another 0.75% hike on Thursday in a bid to rein in mounting inflationary pressures. The market, however, seems reluctant to make big bets on the pound.
The new UK cabinet, and especially the confirmation of Jeremy Hunt as Chancellor of the Exchequer, has calmed the market, making an aggressive move to defend the pound unnecessary. Furthermore, the prospects of an upcoming recession and the softer stance recently taken by some of the world’s major central banks suggest that the Bank of England will soon follow suit and start to slow down its monetary normalization cycle.
Technical levels to watch
Source: Fx Street
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