GBP/USD advances towards 1.1600 on new UK leadership, US ISM services PMI in sight

  • GBP/USD heads towards 1.1600 as Liz Truss win secures UK political stability.
  • UK energy supplier Centrica obtains credit to offset demand for volatile energy price guarantee.
  • The extreme hawkish stance of the Fed is responsible for the drop in the consensus on the ISM services PMI in the United States.

GBP/USD gave an upside breakout of the consolidation formed in a narrow range of 1.1512-1.1520 at the start of the Tokyo session. The asset posted a sharp rise as an expansion in volatility kicked off after a range breakout. Earlier, the Cable saw a firmer bounce after hitting a low of 1.1450. Overall, the asset was down in recent weeks amid political instability in the UK economy. Now news of a change in direction has bolstered the pound bulls.

After battling for the leadership of the Conservative Party for more than two months, Liz Truss finally won the election and was elected Britain’s next prime minister. As Liz Truss announced during her UK leadership contender’s presentation that she will reduce household energy bills, the pound bulls have started to play the road. Also, a situation of political stability in the British economy will strengthen the pound sterling.

At the same time, the impact of energy price volatility has spread to energy suppliers. According to reports from the Financial Times, Britain’s biggest energy supplier, Centrica Plc, is in talks with banks to secure billions of pounds of additional credit to meet growing demands for guarantees as the energy market remains volatile.

On the dollar front, the US Dollar Index (DXY) has given up psychological support at 110.00. The DXY is facing heat from a weaker consensus for the US services ISM PMI data. Economic data will decline to 55.5 from the previous release of 56.7. It seems that the consequences of the extremely hawkish Federal Reserve (Fed) are visible now and that US economic activities are declining. The unavailability of cheap money forced the company to postpone channeling funds into new investment opportunities and expansion plans.

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