Pound bolstered by Sunak optimism

The pound rallied on Tuesday as Rishi Sunak’s first day as Prime Minister appeared to bring some relief to GBP investors.

Sterling remains on the front foot this morning, with GBP/EUR ticking up to €1.1539 and GBP/USD jumping to $1.1540. GBP/CAD has rallied to C$1.5670, while GBP/AUD and GBP/NZD dip to AU$1.7908 and NZ$1.9928, respectively.

Looking ahead, markets will be keeping a close eye on Sunak as he makes his first appearance at Prime Minister’s questions.

What’s been happening?

The pound strengthened through yesterday’s European session as Rishi Sunak assumed the office of Prime Minister.

Sterling sentiment improved as markets seemed optimistic that Sunak will be fiscally prudent and pursue more orthodox economic policies than his predecessor.

GBP investors also appeared receptive to Sunak’s cabinet reshuffle, with the pound rising as several ministers appointed by Liz Truss, resigned.

The euro, meanwhile, traded without any strong directional bias on Wednesday. After a mixed IFO business climate index from Germany.

While October’s index reported a much smaller drop in sentiment than expected. It also highlighted firms’ growth concerns and warned that a winter recession is coming.

At the same time, the US dollar slumped through yesterday’s trading session amid growing speculation the Federal Reserve will slow the pace of its monetary tightening cycle following the bank’s November rate decision next week.

A cautiously optimistic market mood also limited the appeal of the safe-haven ‘greenback’.

What’s coming up?

A sparse data calendar could see the focus remain on UK politics today as we potentially learn more about Sunak’s policy plans.

It will also be Sunak’s first Prime Minister’s Questions, with GBP investors watching closely to see how he stands up to criticism and if he can put up a more convincing performance than his predecessor.

The US dollar could face further resistance today if USD investors continue to scale back their Fed rate hike bets. However the ‘greenback’ could stage a comeback if market risk appetite sours through the day.

Meanwhile, movement in the euro is likely to be limited today, with EUR investors reluctant to make any bullish bets ahead of the European Central Bank’s (ECB) impending interest rate decision.