Sterling rallies on November hike bets, Liz Truss Departure

The British Pound rallied on Thursday and investors reined in their bets on a big Bank of England interest rate hike in November as UK Prime Minister Liz Truss announced her resignation just six weeks after she was appointed.

At the time of writing the GBP/USD pair is trading at 1.129 versus the previous closing at 1.121 on Wednesday. Truss’ economic programme sent shockwaves through the markets and divided her Conservative Party, contributing to a sharp a selloff in UK assets.

Pressure on the prime minister had been mounting in recent days and a leadership election will be completed within the next week.

The pound, which had rallied ahead of Thursday’s news, was last up 0.74% at $1.13060 . It edged 0.17% higher against the euro to around 86.970 pence, moving off a one-week low touched earlier.

Initially, this is likely to take an uncertainty premium out of the market but it depends who takes over. Truss’ resignation came a day after a second top minister quit and rowing and jostling broke out among her lawmakers in parliament.

Her premiership has witnessed a bond market rout and a U-turn on almost all of her fiscal policy programme. Wednesday saw Truss lose her interior minister, less than a week after she fired her finance minister.

Economists believe that the GBP/USD pair could suffer a substantil drop on a break under the 1.0920 mark.

Break of the resistance zone at 1.1495/1.1550 essential for extension in bounce. Daily RSI is near the upper end of bearish territory denoting a cross above zone of 1.1495/1.1550 is essential for extension in bounce.

Failure can lead to continuation in downtrend. In case recent pivot low at 1.0920 gets violated, there could be a risk of next leg of downtrend towards 1.0550/1.0520 and September levels of 1.0350.

Some economists still believe the sterling will go down, not up, because rates won’t go as high as traders expect.