August 29, 2022 12:31 AM ET
By: AnalysisWatch
GBP/USD has fallen 0.66% to near 1.1660 early Monday morning in Europe, its lowest level since March 2020.Nonetheless, the cable pair retested a multi-month low amid widespread strength in the US dollar.
However, the downside has been difficult lately as the markets in the UK were closed for the summer vacations.
Nevertheless, the U.S. dollar index (DXY) reached a new high in September 2002, rising 0.50% to 109.35 as it tracked U.S. Treasury bond yields northward. The run on the dollar and selling of U.S. bonds was apparently triggered by the Jackson Hole symposium and the political drama in the United Kingdom, with 10-year U.S. Treasury yields recently rising nine basis points to 3.123%, a one-month high.
In addition, fears over the U.K.'s economic slowdown intensified after the U.K.'s energy regulator said that the U.K.'s energy bill will rise 80% to an average of 3,549 pounds ($4,188) a year starting in October.
To counter this, UK frontrunner Liz Truss is considering a 5% across-the-board cut in VAT to bring down the cost of living if she replaces Boris Johnson as prime minister next month, reports the Sunday Telegraph. However, supporters of the other candidate for the leadership of the ruling Conservative Party, former finance minister Rishi Sunak, believe the move will be less effective.
It should be noted that the aggressive stance of the US Federal Reserve and the UK energy and political policies could put pressure on GBP/USD prices. However, a holiday in the UK could limit the immediate movement of the cable pair. Above all, talk about the recession and the US labor market report for August on Friday will be important for traders of the pair to get new impetus.
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