Sterling under pressure from dollar

Sterling is largely affected by dollar volatility. In the past period of time, the dollar has been rising on the prospect of raising interest rates, and the pound has been under pressure in recent times. However, the direction of the dollar still depends on officials' stance on the magnitude of the November rate hike, and in the minutes of the Fed's September monetary policy meeting released this week, officials said it was important to calibrate the pace of further tightening to mitigate risks to the U.S. economy of.

After abandoning the plan to cancel the top income tax rate on October 3, the British government made major policy adjustments under continuous pressure on the 14th. British Prime Minister Elizabeth Truss announced on the same day that it would retain the corporate tax hike plan announced by the previous government, which will bring the government 18 billion pounds (1 pound about 1.118 US dollars) in revenue every year.

Nonetheless, the pound exchange rate and British government bond prices remained under pressure on the day. Analysts at Citi pointed out that the mini-budget announced by former finance minister Kwarteng on September 23 certainly roiled financial markets. But investors are more worried about the British government's indecisive stance on economic policy, which has further increased market uncertainty. Only when Prime Minister Truss is also ousted can peace be finally restored to bond markets.

Bank of England chief economist Huw Pill expects a "significant" change in UK interest rate policy next month in response to the UK government's fiscal plan. In his view, the UK government's "growth plan" and its support for the Household and Business Energy Bill will increase inflationary pressures in the medium term. The UK government's energy package effectively shifts the main macro risk from rising gas prices away from headline inflation, putting more pressure on the fiscal deficit in turn. It is crucial to ensure that the shift and other UK government tax measures do not have an impact on the long-term sustainability of public finances or on the broader institutional framework for macroeconomic policy.

Sterling has been the talk of the world since it fell to an all-time low against the dollar at the end of September, with many forecasters more bearish, although some believe there is still a good buy around that low. The market is predicting that GBP/USD may bottom out in the next few years, near the 1.035 level, which is currently a buy point from a long-term investment perspective. For short-term investors, the capitulation index has bottomed out, which also points to an imminent rebound in the pound.

The British pound is already one of the biggest losers among the G10 currencies in 2022 ahead of the budget announcement, despite the government's widely criticized budget. All of this makes GBP trade at a deep discount on many different valuation metrics, which is why it's now getting the attention of the BCA research team, advising investors to view GBP/USD as a long-term investment, recommend buying Enter and hold.

According to the British "Guardian" report, a number of senior Conservative MPs will meet on the 17th local time to discuss the future of Prime Minister Truss, some of whom hope that Truss will resign within a few days. The Guardian said 15 to 20 former cabinet ministers and other senior MPs had been invited to a dinner convened by key supporters of former UK chancellor Sunak to plan how and when Truss would be ousted.

On the other hand, the "Guardian" said that the camp supporting Truss is also in action, and her cabinet allies warned Conservative MPs on the evening of the 15th local time if they overthrew the second leader in just a few months. Man, the Conservative Party will certainly "maintain party interests as a party". The cabinet minister also warned: "This is not light intimidation," the report said.