GBP/USD Upbeat as the UK Attracts Nearly £30 Billion in Foreign Investments

GBP/USD Analysis

Last week's "Autumn Statement for Growth" offered tax breaks for businesses and workers, while also raising the minimum wage by 10%, largely aiming to boost domestic investment and prop the weak economy. The PM today announced commitments for £29.5 billion of investments from foreign firms, as the 2023 Global Investment Summit (GIS) gets underway ^[1]. The sum is "triple" than what was raised in the last summit two years ago and the PM spoke of "a vote of confidence in the UK" during a Bloomberg interview. ^[2]

UK100 may have been subdued after the Autumn Statement, but GBP/USD benefits from the growth narrative, since it strengthens prospects of prolonged restrictive stance by the Bank of England. The government's announcements create upside risks to inflation and could drive the central bank to a more aggressive stance.

Although they have stayed on the sidelines for two straight meeting, policymakers have not ruled out further tightening. Governor Bailey last week that the BoE is "on watch" for inflation persistence that "may require interest rates to rise again" and said it's "far too early to be thinking about rate cuts" ^[3]. At the same time, recent data and from the US have bolstered market optimism that the Fed is done hiking and has brought forward expectations around the timing of the first cut.

GBP/USD runs its best month of the year trying to take out 1.2680, which will bring the 76.4% Fibonacci of the July October drop in its crosshairs, although it looks distant for now. However, the UK economy remains fragile and any more tightening from the BoE could harm it even more. The move looks stretched technically and this creates risk for renewed pressure back to the daily Ichimoku Cloud, but strong catalyst would be needed for breach of the EMA200 (1.2360). The current week includes key releases from the US that could determine the pair's trajectory, mainly Thursday's PCE inflation update.