UK electing new leader; how will this affect the GBP?

  • We might expect heightened volatility in the GBP in the days before and after the UK election result on September 5, 2022
  • GBP bulls may want to look at GBP/JPY, as the yen has been weak across the board
gbp

As the UK will announce a new Prime Minister on September 5th, we might expect heightened volatility in the GBP in the days before and after the election result. Moreover, the new policymaker has the potential to change the long-term trend of the pound, with the potential reforms conducted impacting the UK economy. 

Only a few days remain until the new prime minister is appointed, so the current polls are indicative of the election’s results projections, especially if the difference is significant. 

Liz Truss is ahead of Rishi Sunak, with the recent polls placing Truss 30 points ahead of Sunak. If nothing radical happens in the next several days, Liz Truss will be a prime minister, with odds of 91%, according to The Telegraph. 

Implications for GBP? 

Liz Truss stands out by having popular policies, such as lowering taxes. On the contrary, Rishi Sunak is focused on tight fiscal policies, including raising corporate taxes. 

In an already high-inflation environment, low taxes could push consumer prices even higher. The Bank of England is likely to step in and raise the interest rate in response, potentially supporting the GBP. 

Therefore, if Liz Truss takes control of the UK government, the GBP may strengthen. The bearish sentiment for GBP may occur if Rishi Sunak wins. 

Technical view on GBP 

The GBP bulls may want to look at GBP/JPY, as the yen has been weak across the board in 2022. 

GBP
GBP/JPY 1D, with 50-100-200 Day Moving Average Indicator 

The pair is in a long-term uptrend, as the prices stay above 200-day MA. Since the beginning of August, GBPJPY has been consolidating under 50 and 100-day MAs, forming a triangle. The breakout above the upper border and MAs around 163.0 may end the long-term correction and send prices to the 168.0 resistance.  

Alternatively, GBP/USD could be an appropriate pair to go short if the pound acts weak. 

GBP
GBP/USD 1D, with 50-100-200 Day Moving Average Indicator 

As seen above, the market is approaching Covid-19 lows near 1.14, with local resistances at 1.18 and 1.22. 

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