GBP/USD trades in positive territory and continues to edge higher toward 1.1400. Nonetheless, gains are set to prove only temporary, in the opinion of economists at MUFG Bank.
UK will be hit by a deeper recession than elsewhere
“The removal of political instability in the UK is certainly a positive and could over the short-term provide some further support for the pound. However, we suspect gains could be brief and would caution over how much further this news can lift the pound.”
“The pound is already at levels that existed prior to the lurch into political uncertainty and the tax rises/spending cuts that are coming will mean the UK will be hit by a deeper recession than elsewhere.”
“IMM positioning data showed to last Tuesday Leveraged Funds were GBP sellers as PM Truss began to lose her grip on power and political turmoil escalated. So it is certainly plausible we get a further temporary lift but we would emphasise the word ‘temporary’.”
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