How will Sunak's Election Affect the Pound?

How will Sunak's Election Affect the Pound?

2022-10-25 • Updated

What happened?

On Monday, October 24, Rishi Sunak was elected the new UK Prime Minister. After the significant failure of the previous Prime Minister Liz Truss, whose plan for tax cut dumped the GBP and bond markets, a new PM has to find ways to return international investors' trust in the UK economy and slow down the inflation growth. 

 

What to expect?

"Difficult decisions await us next", - Sunak said at the first press conference as Prime Minister of Great Britain. 

In our view, Sunak will take tough steps against inflation in the first days of work. On November 3, the Bank of England will decide whether it will raise the key rate by 50- or 75-basis points. Despite its formal independence, the BOE might choose a more hawkish scenario for the key rate, strengthening the GBP against other currencies.  

 

Technical analysis

EURGBP, H4 timeframe

EURGBPH4.png

EURGBP bounced off the descending trend line, highlighting the pair's weakness. We expect the price to keep declining toward 0.8625, 0.8580, and 0.8540.

Traders might consider selling the pair if the price touches the resistance trend line once again or after the price breaks below 0.8660.  

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