GBP/USD grinds higher past 1.1250 on UK’s fiscal optimism, UK Inflation, plot to topple PM eyed

• GBP/USD extends weekly gains amid receding fears about UK markets’ collapse.
• Jeremy Hunt’s appointment as fresh Chancellor may not relieve Truss as Tory backbenchers brace to oust her.
• BOE’s Bailey sounded hawkish and keeps the intraday buyers hopeful amid a light calendar.

GBP/USD adds half a percent to 1.1225 as buyers extend the previous week’s gains amid recent positives from the UK. Also keeping the Cable pair firmer during early Monday is the absence of major data/events and the sluggish US dollar.

Kwasi Kwarteng was forced to goodbye, indirectly, after a short and tragic term as the British Chancellor. His resignation and U-turn on the tax proposal, as well as a rethink on several aspects of the “mini-budget”, seems to have underpinned the GBP/USD rebound after Friday’s downbeat performance. Also, Jeremy Hunt’s appointment as the new Finance Minister, also known as the Chancellor, adds strength to the cable pair’s recovery moves due to his political reputation.

While the aforementioned catalysts tame the previous fears of the British economic collapse, some of the Tory backbenchers are preparing to topple newly appointed Prime Minister (PM) Liz Truss and trigger another drama in London. The news from the Daily Mail and The Times both confirms the Conservatives’ efforts to call-in 1922 Chairman Sir Graham Brady in the political plot.

Elsewhere, US Dollar Index (DXY) helps gold buyers to consolidate recent losses amid a light calendar day, as well as an absence of the 1.0% Fed rate hike call. That said, recently firmer US data and the market’s bets surrounding the 75 bps move keep the GBP/USD sellers hopeful.

US Retail Sales remained unchanged with 0.0% growth for September versus 0.2% expected 0.4% upwardly revised prior. Further, the preliminary readings of the Michigan Consumer Sentiment Index for October were 59.8, better than the forecasted figure of 59 and 58.6 previous readings. More importantly, the University of Michigan’s 1-year and 5-year inflation expectations increased for October, respectively to 2.9% and 5.1% compared to 2.7% and 4.7% priors in that order.

During the weekend, St. Louis Federal Reserve Bank President James Bullard said, “The US has a serious inflation problem,” the policymaker also adds, “Front loading fed policy is the right strategy.”

Moving on, a light calendar in the US may restrict the intraday moves of the GBP/USD prices but the political play will be interesting to watch. Also, hawkish comments from the Bank of England (BOE) Governor Andrew Bailey, published during the week, highlight this week’s UK inflation and Retail Sales data for September as the key catalyst for the Cable pair traders to watch for fresh impulse.

Technical analysis

A five-week-old resistance line near 1.1340 appears the key hurdle for the GBP/USD pair buyers to tackle while bears need to conquer 1.1085 to return to the throne.