Far from certain new UK PM could alter gloomy tone weighing on GBP – Rabobank

Eren Sengezer FXStreet

Commenting on the potential impact of the latest UK political developments on the British pound, Rabobank analysts argued the new British prime minister will be unlikely to substantially alter the gloomy tone that has been weighing on the GBP.

BoE’s mandate may have to be re-examined

"While tax hikes would boost demand, they could also create further inflation and counter the current policy tightening efforts of the BoE. This could mean further rate rises from the BoE then would otherwise be the case, which would sap the growth potential that Truss hopes to create. "

"Truss at the weekend indicated that the BoE’s mandate may have to be re-examined. She suggested that Japan may be able to provide examples of best practices. This, however, only served to highlight how unaware Truss is of the deflation and growth issues that have plagued the BoJ for decades. Additionally, any further signs from Truss that she could move to reduce the BoE’s independence will not be welcomed by GBP investors given fears that she may make the Bank a lackey to vote-winning government policies."

"Given our expectation that USD strength is likely to persist for around 6 months or so in view of risks to global growth, we foresee the potential for further sharp drops in the value of the pound. We have revised lower our target for cable from 1.18 and see the potential for a dip to levels as low as 1.12 on a 1-to-3-month view. The assumes a more sustained break below EUR/USD1.00."

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

EUR/USD stays weak near 1.1850 on firmer US Dollar

EUR/USD holds onto Friday’s losses near 1.1850 in the early European trading hours on Monday. The pair remains vulnerable to further downside as the US Dollar stays firm following President Donald Trump’s nomination of Kevin Warsh as the next Fed Chair. The focus now shifts to the US ISM Manufacturing PMI data.

GBP/USD drops below 1.3700 as markets mull a Fed under Warsh

GBP/USD stays under pressure below 1.3700 in the European morning on Monday. Traders weigh what a Federal Reserve under Kevin Warsh might look like, propping up the US Dollar at the expense of the Pound Sterling. The US ISM Manufacturing Purchasing Managers Index report is next of note later on Monday.

Gold extends decline on profit-taking, awaits US ISM PMI

Gold price tumbles to a three-week low below $4,550 during the early European trading hours, pressured by some profit-taking. The precious metal extends the decline after reaching historic highs last week amid signs of political stability in the United States as Kevin Warsh was selected to be the next Fed chair, easing concerns over the US central bank’s independence.

Bitcoin slips below $75,000 as selling pressure accelerates

Bitcoin (BTC) price falls below the $75,000 mark on Monday, having corrected nearly 11% in the previous week and reaching level not seen in nearly 10 months. Market momentum has clearly turned bearish, with technical indicators pointing to further downside toward the next key support at $70,000.

Global central banks hold steady as EMs signal easing ahead

Central banks across both G10 and emerging markets met this week, with most opting to keep policy rates unchanged. Canada, Sweden, Brazil and Chile all held rates steady. Beyond central bank decisions, the Eurozone's solid Q4 GDP growth bolstered the case for the ECB to keep policy rates unchanged next week.