The bears of the GBP/USD pair failed to overcome the crucial support level of 1.1000 last week. Despite all the attempts made, this price barrier resisted and did not allow the pair to go to the area of 9–8 figures. As a result, the initiative was seized by the buyers, who organized a 300-point corrective growth. However, the upward rally also bogged down rather quickly: the GBP/USD bulls failed to gain a foothold within the 13th figure, ending the trading week at 1.1176. Therefore, the main intrigue of the coming days is a simple dilemma: will traders be able to repeat the upward march or will they be forced to return to the support level of 1.1000?
As you know, British Finance Minister Kwasi Kwarteng, who was the direct author of the odious anti-crisis plan involving tax cuts, left his post on Friday. Prime Minister Liz Truss fired him 38 days after his appointment. The reason for the resignation of the head of the Ministry of Finance was the already mentioned tax reform, which brought down the pound and which forced the Bank of England to turn on the printing press.
However, the very fact of the resignation did not impress GBP/USD traders much—the pair only formally reacted to this news. After all, simultaneously with this news, it became known about the forthcoming speech of the Prime Minister, during which she should tell what part of the anti-crisis plan the Cabinet of Ministers decided to abandon. The details are unknown, but according to most analysts, these are just a few (and mostly minor) changes. Earlier, Truss announced that the tax rate of 45% on the highest incomes in the country would not be reduced—in this part, she lost to her opponents and critics. But at the same time, the prime minister added that the refusal to cancel the highest income tax rate will allow ministers to "focus on other parts of the anti-crisis plan."
So, a resonant performance by Liz Truss is expected today. Its results can either strengthen or collapse the pound's position throughout the market.
But here, it is necessary to take into account another point that can significantly distort the fundamental picture of the day for the GBP/USD pair. The fact is that, according to the British press, a group of high-ranking representatives of the Conservative Party decided to publicly call on Liz Truss to resign. The meeting of the "top" conservatives is also due to take place today, and, apparently, the first relevant insiders will appear in the afternoon.
According to The Guardian, one group of Tories will demand the immediate resignation of the head of government. While other conservatives plan to "systematically publicly urge Truss to leave office after the failure of her tax reduction program." At the same time, there is currently no consensus on the future fate of the Prime Minister: according to some interviewed deputies of the House of Commons, she will be able to withstand a blow – at least for the reason that the Conservatives "do not have a worthy successor for her." At the same time, they note that the prime minister "will be able to survive (in office) if she holds out until the end of next week." That is, after the presentation of the updated anti-crisis plan and the corresponding reaction of the public/conservatives.
While other politicians interviewed by The Guardian journalists doubt that Truss will be able to hold the post of head of government. As one of the unnamed former ministers said, the prime minister is now in the waiting room, and at the same time, her support is weakening even among ministers. According to the ex-minister, Truss may not withstand the onslaught and leave voluntarily or try to resist, but will still be forced out over time.
Thus, increased volatility is expected for the GBP/USD pair today and in the coming days. The resignation of the finance minister and a certain compromise by Truss in terms of tax reform helped the pound to make an upward march: the GBP/USD pair increased by 300 points in just a few days. However, to date, it is quite risky to open longs. The fundamental background for the British currency may change significantly by the end of today. At the same time, the macroeconomic reports that were published last week (in the field of the labor market, GDP growth) faded into the background. The focus is on the fate of the Prime Minister. Regardless of whether it can hold the blow or succumb to the onslaught of opponents, the pound may be under significant pressure. After all, do not forget that the market has not yet familiarized itself with the "updated" anti-crisis plan of Truss.
In the face of such uncertainty for the GBP/USD pair, it is best to take a wait-and-see position, at least until tomorrow.
