- GBP/USD struggles to extend gains, seesaws around weekly top.
- Chatters over UK PM Truss’ tax cut plans, Kwartang’s return to London keep traders on dicey floor.
- Softer yields weigh on DXY but GBP bulls await US consumer-centric data for fresh impulse.
- Fears of disappointment from the UK policymakers, US data suggest further challenges for buyers.
GBP/USD treads water around 1.1330, snapping a two-day rebound from the weekly as buyers await the key catalysts during early Friday in Europe.
The Cable pair rose the most in two weeks the previous day amid broad US dollar weakness, as well as headlines concerning the UK’s mini-budget and tax cut plans. However, fears that UK politics will remain jittery and can negatively affect the Bank of England’s (BOE) decision-making seemed to have weighed on the GBP/USD prices of late.
“UK chancellor Kwasi Kwarteng has left Washington early to address the country’s economic crisis as Prime Minister Liz Truss prepares to rip up the government’s ‘mini’ Budget in a desperate attempt to rebuild market confidence and save her embryonic premiership,” said the Financial Times (FT). “Expectations are mounting in London and in financial markets that he (Kwarteng) will imminently announce a U-turn on the £43bn package of unfunded tax cuts in his “mini” Budget unveiled late last month,” adds FT.
Additionally, a report from the Bank of England (BOE) and comments from the International Monetary Fund Managing Director Kristalina Georgieva also challenge the GBP/USD prices. “A BoE report said the central counterparties (CCPs) in Britain's financial system were "resilient", but said there were major differences after its first public stress test of ICE Clear Europe, LCH and LME Clear,” reported Reuters. Elsewhere, IMF’s Georgieva rebuked the British government over its planned tax cuts, telling its finance minister and central bank chief that their policies should not be contradictory, per Reuters.
Elsewhere, the US Dollar Index (DXY) remains pressured around 112.40, despite the latest rebound from the intraday low, as traders fear another US Consumer Price Index (CPI)-induced false alarm. On Thursday, the US CPI eased for the third consecutive day while the Core CPI rose to a fresh 40-year high on YoY.
Against this backdrop, the global markets remain dicey, mildly bid, but the US Treasury yields retreat from the latest highs and challenge the traders. Hence, GBP/USD traders will wait for the US data and any updates from the UK for fresh directions. That said, the key US Retail Sales for September are expected to ease to 0.2% MoM versus 0.3% prior and may add to the US dollar’s weakness. Also important will be the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.
Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise
Technical analysis
Although 1.0930-15 offer strong support to the GBP/USD prices, buyers need to cross the seven-week-old resistance line, around 1.1400 to convince bulls. That said, RSI and MACD conditions favor buyers amid a clear break of 21-DMA, around 1.1160 at the latest.