GBP/USD crosses monthly resistance to touch 1.1600 as UK stimulus hopes join risk-on mood

• GBP/USD prints the biggest daily gains in a month amid broad US dollar weakness, optimism at home.
• Hopes from newly appointed UK PM Truss favor Cable, especially after the latest UK energy plan.
• US Dollar Index drops to one-week low even as Fed’s Powell, Evans favored more rate hikes.
• Last round of Fedspeak before blackout period will be crucial, UK Consumer Inflation Expectations are important too.

GBP/USD takes the bids to refresh intraday high near 1.1600 heading into Friday’s London open as the risk-on mood weighs on the US dollar. Also keeping the Cable pair buyers hopeful is the recent positive sentiment in the UK after newly appointed Prime Minister (PM) Liz Truss works on her promises made during the campaigns.

The recent comments of US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment while sluggish yields and the absence of major data helps consolidate the previous moves. Also, firmer data from major economies in recent days and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates seemed to have favored the market’s mood.

On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies. Furthermore, Fed Chairman Jerome Powell said on Thursday that they need to act forthrightly and strongly on inflation, as reported by Reuters. "We think by our policy moves we will be able to put growth below trend and get labor market back into better balance," added Fed’s Powell. On the same line was Chicago Fed Chairman Charles Evans who favored a 0.75% rate hike for September. Also hawkish was the European Central Bank (ECB) which announced a 0.75% rate hike and President Christine Lagarde showed readiness for more such moves to tame inflation.

Elsewhere, British Prime Minister (PM) Truss announced on Thursday the government will introduce a two-year "energy price guarantee" and explained that a typical household will pay no more than £2,500 a year on energy bills. “Treasury announcing a joint scheme working with BOE to address extraordinary liquidity requirements faced by energy firms, worth £40 billion,” added UK PM Truss. On a Brexit page, UK PM truss also mentioned, per the UK Express, that she wants a “negotiated solution” to the row warning it must “deliver all the things” the UK has demanded before.

Against this backdrop, the US 10-year Treasury yields remain sidelined near 3.32%, after a positive day, whereas the S&P 500 Futures traces Wall Street’s gains around 4,010.

Looking forward, the UK Consumer Inflation Expectations for August, prior 4.6%, will entertain traders amid a light calendar. Even so, the last lot of Fedspeak ahead of the blackout period, starting from this weekend, will be important to watch for the GBP/USD traders.

Technical analysis

A clear upside break of the monthly resistance line, now support near 1.1520, as well as the 10-DMA level near 1.1560, directs GBP/USD bulls towards the late August swing low near 1.1720.