GBP/USD: A neutral stance is appropriate – TDS

Liz Truss resigned as UK prime minister after only 44 days in office. Economists at TD Securities view this as a reduction in the risk premium around GBP but prefer a neutral standing for now.

Truss stepping down helps to reduce the downside from a risk sentiment perspective

“UK PM Truss decided to resign. There will be a Conservative Leadership election next week, which is expected to come down to Rishi Sunak as the odds on favourite over Penny Mourdant. However, this is not a done deal.”

“The Fiscal Statement plans to go ahead on Oct 31, even with the lame duck government showing signs of the dysfunction of the Party and fear of testing market pressure once again.”

“A change in UK leadership is not a major surprise. At a minimum, it helps to reduce the downside risk around GBP.”

“We do not see a clear directional pull for GBP but provided that the fiscal statement later this month reinforces fiscal prudence, we expect broader market forces like data, Fed, BoE and the USD to be the dominant influencers to GBP's outlook.”