GBP/USD Ignores UK Politics as the Fed and the BoE Take the Stage

The Tory Party and Prime Minister Rishi Sunak appear to be on a collision course with an early General Election.

Hopes for a trouble-free first week look dashed after the Prime Minister made his first U-turn just days after taking office. Last week, Downing Street announced the UK Prime Minister will not attend the COP27 Climate Summit, citing pressing domestic matters.

This was the first U-turn, with the incoming Prime Minister previously placing the environment as a priority. The announcement came despite the UK currently holding the COP presidency.

However, the UK Prime Minister U-turned for a second time, with Downing Street announcing that the British PMI could attend COP27. This week, announced that Sunak’s attendance remained under review. The timing couldn’t be worse for the PM, with the summit ending the day after Jeremy Hunt announces his Autumn Budget.

While the real reason for the possible U-Turn is unclear, rumors of former British PM Boris Johnson planning to attend may have incentivized Sunak to change course. With the Tory Party on the proverbial ropes, this was the kind of media attention Sunak may have preferred avoiding.

New Cabinet Draws Condemnation from Within the Tory Party

Adding to Sunak’s troubles is criticism of the new cabinet, not just from the opposition party but also from within his own Party. The criticism comes at a time when Sunak talked of uniting a divided Party divided by Brexit, Boris Johnson, and Liz Truss.

As part of the cabinet rebuild, Sunak appointed the recently ousted Suella Braverman as home secretary. It remains to be seen whether Braverman resigns or becomes the reason for another Prime Ministerial departure.

While Sunak may be able to pass the buck when it comes to not being able to attend COP27, there is no hiding from the Braverman appointment.

Things could get even worse before there is a chance for sentiment towards the Tory Party to improve.

Autumn Statement Sets Up the New UK Government for a Big Fall

After delaying the fiscal statement, Jeremey Hunt will face a stern test on November 17. The markets expect a combination of tax hikes and spending cuts to plug the hole.

Chancellor Jeremy Hunt and Prime Minister Rishi Sunak are all too aware of the risks of delivering an unpalatable budget. It also remains to be seen whether Sunak can stick to his promise of delivering Boris Johnson’s 2019 Party manifesto.

Considering the U-turns and the pitfalls, the GBP/USD may yet succumb to another sharp retreat. The Tory Party is running out of contenders to lead the Party into the next General Election, and a Sunak departure could lead to an early general election that could hand the keys of number ten to Keir Starmer.

The good news is that the markets will be focused elsewhere for the remainder of the week. Later today, the Fed will deliver its November monetary policy decision. More importantly, Fed Chair Powell will hold a press conference. Powell could remove any uncertainty over the Fed’s plans for December.

Tomorrow the Bank of England will deliver its November policy decision. Uncertainty over the Autumn budget places the Bank in a difficult position, particularly if the new government can U-turn on policies before the act.

This morning, the GBP/USD was up by 0.08% to $1.14941. We expect a choppy few days ahead as the markets grapple with monetary and fiscal policy.