06.09.202215:11 Forex Analysis & Reviews: GBP/USD: Bullish sentiment may fade away soon

Yesterday, in the absence of American players (Labor Day was celebrated in the USA and Canada), the dollar index broke through to a new local resistance level of 110.26, the highest since October 2002. As of writing, DXY futures are trading near 109.63, maintaining a bullish tone.

Meanwhile, on today's trading day and at the beginning of the European trading session, a certain imbalance formed on the currency market: the Australian currency sharply weakened after the RBA meeting ended, dragging the New Zealand dollar with it. At the same time, the US dollar strengthened against the yen but weakened against the major European currencies—the euro and the pound. The conclusion suggests that this strengthening of the pound and the euro against the US dollar will not have a long-term character, given the general trend of the strengthening of the US dollar and its total superiority in the foreign exchange market.

Moreover, yesterday the services PMI and composite PMI (from S&P Global/CIPS) in the UK were published. Both indices came out worse than expected, showing a slowdown in this important sector of the British economy. The service sector employs the majority of the UK's working-age population and accounts for approximately 75% of GDP. Financial services continue to be the most important part of the service sector. At the same time, the composite PMI fell below 50.0, which separates the growth of business activity from the slowdown.

The current strengthening of the pound and the growth of the GBP/USD pair can, perhaps, be attributed to an important political event. On Monday, the United Kingdom finally elected its new Prime Minister, Liz Truss, having received the majority (81,326) of the votes of the representatives of the Conservative Party. "I will propose a bold plan to lower taxes and grow our economy," Truss said during her speech.

Starting October 1, UK's Gas and Electricity Markets Authority will approve new electricity tariffs, which will exceed the current ones by 80% and amount to £5,549 per year, which, in turn, will become the main driver of inflation. According to economists, it can reach 13.0%. In the current environment, when the Bank of England is already raising interest rates at an accelerated pace, and this has so far weakly curbed inflation,

Most likely, after the passions around the new British Prime Minister subside, the pound may again come under strong pressure, primarily against the USD.

Thus, the current growth of GBP/USD provides opportunities to enter short positions, both on the market and in case of growth to the resistance levels of 1.1638, 1.1650.

And from the news for today, attention should be paid to the publication (at 14:00 GMT) of the US services sector PMI (from ISM, Institute for Supply Management). According to the forecast, a slight relative decline in the indicator is expected, to 55.1 from 56.7 in July. Despite the relative decline, this is a high figure. A result above 50 indicates an increase in activity and is considered a positive factor for the USD.