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

Mark O'Donnellon 01/09/2022|
2 min read

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. 

What are the implications for GBP?  

Liz Truss stands out by having an agenda including 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/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/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.