GBP/USD Outlook: Pound May Face Volatility as Investors Await New PM

• Markets are awaiting the announcement of the following UK PM.
• The BoE could raise rates by 75bps at the next meeting.
• Tensions with the EU could return with a new PM.

Today’s GBP/USD outlook is bearish. After a tumultuous week in which worries about the UK’s deteriorating economic outlook, the policy course under a new prime minister, and the demand for dollars all hit the British currency, the pound stabilized on Friday as some calm returned.

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The Sterling lost over 1.5% of its value against the dollar last week. This week may be much more unpredictable as the next prime minister of Britain will be named on Monday when the ruling Conservative Party’s leadership race is over.

Since October 2016, August saw the pound’s worst monthly performance versus the US dollar, and some analysts believe it may touch the all-time low of $1.05 set in 1985.

The foreign minister Liz Truss is leading in the polls for the position of the new prime minister of Britain. She has built her campaign around pledges to cut taxes, but she hasn’t yet explained how she plans to address skyrocketing energy prices. According to some experts, her policies will fuel the already high inflation rate and drive the Bank of England to increase interest rates even more quickly.

When the Bank of England meets on September 15, according to MUFG analyst Derek Halpenny, it may be convinced to follow the Federal Reserve and raise interest rates by a more aggressive 75 basis points rather than the 50 bps now anticipated.

Investors are also concerned about escalating tensions with the European Union when Truss becomes prime minister over trade and border policies for Northern Ireland, the only region of the UK that borders the EU on land.

GBP/USD key events today

Investors are awaiting PMI data from the UK and a speech from BoE Monetary Policy Committee member Mann.

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GBP/USD technical outlook: Treading in the oversold region

The 4-hour chart shows a solid downtrend, as seen in how the price consistently makes lower lows and lower highs. The price trades below the 30-SMA and respects it as resistance, while the RSI trades in the oversold region. It is a sign of a strong bearish trend.

The price is retesting the recently broken 1.15017 and will probably fall to the next psychological level at around 1.14014.

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