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Sterling Rises as Rishi Sunak Becomes UK Prime Minister

The Sterling surges as the UK gets Rishi Sunak as Prime Minister. It is at a seven-week high of 1.1610, with an optimistic Pound and a falling Dollar.


Sterling at Multi-Week High at 1.1610

The British Pound strengthened to close at 1.1610 on Friday, October 28, 2022. The GBP/USD surged to a seven-week high, with Britain getting a new Prime Minister and the US Dollar showing weakness.

The Sterling slid to 1.0384 in September. It gained more than 300 pips last week and closed just above key levels at 1.1600. The GBP/USD currency pair rose to 1.1646 on Friday.

On the upside, the GBP/USD faces resistance at 1.1690. A move above 1.17 levels will push the Sterling to USD to 1.1740 levels.  The Sterling slumped to record lows when the fiscal plan by Lisa Truss to cut tax rates brought volatility to the Pound. But after the United Kingdom got Rishi Sunak as its Prime Minister, the Pound surged to multi-week highs.

The Bollinger Band indicator applied to the British Pound Index chart suggests that the British Pound currency seems undervalued in the short term. Currently, the British Pound is at the higher level of the Bollinger Band momentum indicator. A break above the upper level suggests a buy signal. But a reversal at this level suggests a down move to the GBP/USD currency pair in the forex market.

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Sterling Strenthens as Rishi Sunak Becomes UK PM
Sterling Strenthens as Rishi Sunak Becomes UK PM

Rishi Sunak Third Prime Minister in Two Months

Rishi Sunak is the youngest person to become UK Prime Minister. He is the third PM to rule in less than two months. His predecessor Liz Truss was in office for six weeks after which she resigned. Sunak has promised to bring economic stability to the country. Once the economic fallout comes to an end, inflation will improve, say experts. But interest rates will remain high for long, predict experts. “I place economic stability at the heart of the government agenda,” said Sunak. He has a tough time ahead as inflation is high, and a hike in interest rates may hurt consumer spending.

Sunak is the first non-white person to become UK prime minister. He won the leadership race from the conservative party. Earlier, he was the Chancellor of the Exchequer in 2020.

Jeremy Hunt is the newly appointed Chancellor of the UK. Suella Braverman is re-appointed as the Home Secretary.

Sunak’s appointment will come under pressure as the fiscal policies taken by his government have to bring stability into the inflation-hit economy.  The FTSE 100 surged higher after the country got a new leader in Rishi Sunak.

Major Currency Pairs Forecast

GBP/EUR at Key Resistance Levels

Britain went through turbulent times as the political scenario brought many leaders on stage in the past two months. Though Rishi Sunak brought some stability to the forex market, inflation and recession continue to haunt the country.

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The Pound to Euro steadied last week, but it has to cross 1.1678 to rally higher. The Sterling fell to 1.0820 in late September. It remains to be seen if the Pound can recover and move higher after the change of government last week. The Euro to USD is trading below the parity mark, with a negative bias.

The ECB raised rates by 75bps in its October meeting. The European Central Bank interest rate decision will influence the direction of the GBP/EUR currency pair in the month ahead. The ECB has to consider the slowdown in business activities while setting interest rate policy in the Euro region.

GBP/AUD Just Below Multi-Month High

The Sterling to Australian Dollar currency pair moved lower to 1.5970 in late September 2022 but bounced to 1.8104 in late October. The GBP/AUD has been consolidating at the 1.800 level. A rise above 1.8190 will weaken the Australian Dollar against the British Pound further.

GBP/JPY at 6-Year High

The British Pound to Japanese Yen is at levels last seen in 2016, at a six-year high. The GBP/JPY currency pair closed at 171.19 last week. The rally in the British Pound has weakened the Japanese Yen, taking it above the ¥170 level.

US Dollar Forecast

The Federal Reserve policy is weakening the US Dollar. It will most likely lift the value of the British Pound to US Dollar currency pair. The hawkish approach by the FOMC may result in another rate hike when the Federal Open Market Committee gathers together on November 2.

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The greenback is trading firmly above the 110 marks in September and October but closed last week at the 110.606 mark. The Federal Reserve has to reconsider its aggressive rate hike and slow down its pace once inflation moderates.

Gold prices saw a marginal rise in prices expecting an easing in the Fed’s rate hike. Spot gold was at $1,660 per ounce last week.US Treasury yields dropped on the positive GDP data from the US, surprising many.

The Federal Reserve and the Bank of England are expected to raise interest rates next week.


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