GBP/USD dips below 1.1300 as the Sunak effect fades

• The pound retreats below 1.1300 after failure at the 1.1400 area.
• Investors welcome Risi Sunak's victory.
• GBP/USD is aiming to 1.11/1.12 if 1.1400 resistance holds – Scotiabank.

The pound is depreciating moderately on Monday, despite the initial positive reaction to the news about the election of Rishi Sunak as the next Prime Minister.

The pair was rejected at the 1.1400 area and has been losing ground through the day to consolidate below 1.13 during the afternoon US trading session..

The market welcomes Sunak's victory

News that former PM Boris Jonson retired from the Tory race to Downing Street, leaving the doors open for the market candidate, Rishi Sunak,  triggered an immediate bullish reaction on the GBP and pushed gilts higher in early trading.

The positive reaction, however, was short-lived and the pound lost traction as soon as the market came to terms with the challenges ahead for the UK economy. The soaring inflation coupled with the gloomy growth forecasts are likely to maintain GBP longs on check for some time.

GBP/USD: aiming for 1.12 or 1.11 if 1.1400 resistance holds – Scotiabank

Failure to breach 1.14 will pull the pair to the 1.12/1.11 area, according to FX analysts at Scotiabank: “A break above the 1.1395/1.1400 area could change short-term dynamics and put the pound on course for a 1.15/1.17 test (…)If the 1.1395/1.1400 resistance holds, GBP/USD may slip back to 1.11/1.12.” 

Technical levels to watch