As the UK will announce a new Prime Minister on Sept. 5, we might expect heightened volatility in the GBP in the days before and after the election result. Moreover, the new policymaker has the potential to change the long-term trend of the pound, with the potential reforms conducted impacting the UK economy.
Only a few days remain until the new prime minister is appointed, so the current polls indicate the election's results projections, especially if the difference is significant.
Liz Truss is ahead of Rishi Sunak, with the recent polls placing Truss 30 points ahead of Sunak. If nothing radical happens in the next several days, Liz Truss will be a prime minister, with odds of 91%, according to The Telegraph.
Implications For Pound Sterling
Liz Truss stands out by having an agenda including popular policies, such as lowering taxes. On the contrary, Rishi Sunak is focused on tight fiscal policies, including raising corporate taxes.
Low taxes could push consumer prices even higher in an already high-inflation environment. The Bank of England will likely step in and raise the interest rate in response, potentially supporting the GBP.
Therefore, the GBP may strengthen if Liz Truss takes control of the UK government. The bearish sentiment for GBP may occur if Rishi Sunak wins.
GBP Technical View
The GBP bulls may want to look at GBP/JPY, as the yen has been weak across the board in 2022.
The pair is in a long-term uptrend, as the prices stay above 200-day MA. Since August, GBP/JPY has been consolidating under 50 and 100-day MAs, forming a triangle.
The breakout above the upper border and MAs around 163.0 may end the long-term correction and send prices to the 168.0 resistance.
Alternatively, GBP/USD could be an appropriate pair to go short if the pound weakens.
As seen above, the market is approaching COVID-19 lows near 1.14, with local resistances at 1.18 and 1.22.
