British Pound Respite as US Dollar Weakens and a Possible Policy Backflip

British Pound, GBP/USD, US Dollar, USD/JPY, China, Crude Oil, Gold – Talking Points

• The British Pound gained as the US Dollar took a breather
• The markets appear ready to punish poor fiscal and monetary policy
• Will USD/JPY and GBP/USD see big moves without a tilt in policy?

The British pound found some support on Monday from a weaker US Dollar and after comments by the new Chancellor of Exchequer, Jeremy Hunt over the weekend that implied planned tax cuts might be reviewed.

It could be a tricky week ahead for Sterling with Prime Minister Liz Truss remaining under political pressure and the Bank of England retiring from propping up the Gilt market.

Treasury yields have eased a few basis points across the curve through the Asian session to start the week. The US Dollar is consequently softer overall, with the Australian Dollar the main beneficiary so far, trading above 0.6230.

The Japanese Yen is the only currency not to make gains against the ‘big dollar’ today with the market edgy about possible intervention after some jawboning from officials. USD/JPY is sitting just below the 32-year high of 148.86 seen on Friday.

Chinese President Xi Jinping delivered a defiant speech on Sunday that touched on a multitude of topics covering modernisation, Taiwan, Hong Kong, common prosperity, the military, the environment, technology and foreign policy.

Distinctly missing was any change to the economically crippling zero-case Covid-19 policy. The Hang Seng and CSI 200 equity indices are lower, but it might be more related to Friday’s sell off on Wall Street. Iron ore is lower on the disappointing news.

Australia’s ASX 200 and Japan’s Nikkei 225 are also down on the day while futures are pointing toward a steady start to North American cash session.

Crude oil and gold have seen small gains on the weaker USD. The WTI futures contract is above US$ 86 bbl while the Brent contract has cleared US$ 92 bbl. Spot gold is nearing US$ 1,650 an ounce.

GBP/USD TECHNICAL ANALYSIS

GBP/USD steadied on Monday after peeling back from resistance levels going into the weekend. The break points at 1.1405 and 1.1414 may continue to offer resistance.

The price has been criss-crossing the 10- and 21-day simple moving average (SMA) which could suggest near term uncertainty toward directional momentum. SMAs of 55-days and beyond are all above the price and may indicate that longer term bearish momentum is intact.

Support might be at the previous lows of 1.0924 and 1.0354.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter