Sterling rallies following the announcement of Truss as Prime Minister

GBP

Sterling gained on Tuesday after the new UK government stated it would deliver a significant support package for households facing surging energy bills. New Prime Minister Liz Truss would effectively cap household energy bills near current levels, a move economists believe could cause inflation to fall from its peak. Furthermore, a package of £40bn is reportedly earmarked to support businesses. Together these steps could significantly boost economic growth prospects, not least via the morale boost consumers and businesses would receive. After all, consumption and investment decisions are one of the main casualties of the anxiety posed by the looming rise in energy costs. Although Sterling rallied following the announcement of Liz Truss as the new Prime Minister, upside remains limited for the British currency. This is due to the lack of concrete plans investors can consider, global factors continue to also weigh on the pound. Sterling is unlikely to recover in the short term if inflation keeps rising.

USD

The dollar surged on Tuesday after a report on the US Services industry came in above expectations, showing that the US may well avoid a recession.

The dollar index rose 0.547% after the Institute for Supply Management said its non-manufacturing PMI edged up to a reading of 56.9, up from 56.7 in July. This is the second straight monthly increase after three months of declines.

With recent data showing strength, a recession seems not to be in sight which is pushing treasury yields higher and strengthening the dollar as a result.

Key announcements

10:00 – USD – Monetary policy report hearings

17:35 – USD – FOMC member Brianard speaks