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The GBP/USD pair falls below 1.1200 due to political row in the UK. At the time of writing, the GBP/USD is trading at 1.1177, below its opening price, after hitting a daily high of 1.1366. The British pound extends its loss amid two weeks of chaos around Liz Truss’s mini-budget, which ended with replacing Finance minister Kwasi Kwarteng by James Hunt, as Truss struggles to calm the markets.
The Bank of England finished its emergency bond-buying program as scheduled, buying close to GBP 2 billion on Friday.
The GBP/USD fell as the dollar is boosted by investors, on ramping expectations for further Fed tightening. Meanwhile, the US Dollar Index advances 0.75%, at 113.303, underpinned by rising US Treasury yields; the US 10-year yield gains five bps, up at 4.0%.
On the data front, US Retail Sales disappointed investors, while the University of Michigan Consumer Sentiment exceeded August’s figures. However, American inflation expectations rose by 5.1% in the one-year horizon, above last month’s 4.7%.
On the UK’s side, Prime Minister Liz Truss replaced Kwarteng with James Hunt while increasing the corporate tax from 18% to 25%, which will raise GBP 18 billion a year. At the same time, the Bank of England finished its bond-buying program, aimed to stabilize the markets, though Gilts, namely the 30-year, is up 26 bps, yielding 4.80%,
Given that backdrop, further volatility will hit the GBP/USD next week. Traders should be aware of over-the-weekend developments in the UK, as speculations mount that Liz Truss could step down as Prime Minister, which is perceived as bullish for the pound. Otherwise, hawkish Fed expectations, and political uncertainty in the UK, would favour the dollar.
