Pound Avoids Immediate Backlash From Cabinet Reshuffle

Markets are once again looking nervously at the political situation in the UK after the Prime Minister was forced to reshuffle the cabinet for the second time in as many weeks.

The Latest Developments

• UK Deputy Prime Minister Angela Rayner steps down, replaced by David Lammy in a second cabinet reshuffle this month.
• Markets remain mostly calm as the political situation leaves the Chancellor in place ahead of the November 26 announcement of the Autumn Budget.
• Markets are noticeably concerned about the political situation in the UK as Prime Minister Starmer faces falling public approval and growing discontent in his party.

Pound Steady for Now

of the cabinet reshuffle initiated by the resignation of UK Deputy Prime Minister and Housing Secretary Angela Rayner. The market was initially concerned that a broader reshuffle of Cabinet positions could be triggered. Still, over the weekend it became apparent that Chancellor Rachel Reeves is secure in her post, allowing a quiet open for the pound. Softer US data has been the catalyst for cable, with few BOE speakers ahead of next week's policy meeting set to rattle the markets.

Secretary Rayner's resignation makes the situation more complicated for Prime Minister Keir Starmer, and that could keep the. Rayner resigned after reports revealed that she failed to pay enough tax on her flat, a particular complication as the government faces pressure from the base to raise taxes. The Labour Party is working on calling an election for a new deputy leader, which could provide an opportunity for members to voice increasing dissatisfaction with Starmer's perceived shift to the right. Starmer, earlier in the year, faced a rebellion of 100 MPs over plans to cut welfare benefits to make space in the government's tight finances. This is also the second time in as many weeks that he has had to shift around roles in his government, as. Although there is no expectation that his government could collapse, the repeated political upsets could leave markets nervous.

Gilts Stand in the Way of Pound Consolidation

Should the Labour Party elect a more tax-friendly deputy leader, this could increase pressure on Chancellor. The new deputy leader wouldn't have as much influence as Rayner, given that the Deputy Prime Minister job has already been allocated to Defence Secretary David Lammy. However, gilts have remained high as deficit hawks worry that Reeves will have to break her promise not to raise taxes at the upcoming Autumn Budget, set to be released on November 26. The immediate political situation has left the pound unscathed, as it has affected other aspects of government. However, markets are still noticeably uneasy, which could keep the pound under pressure.

Cable Facing Triple Top Resistance

The GBPUSD had started the week in the green amid a weaker dollar after the US NFP disappointed last Friday. Despite RSI being above 50 on the 4-hour, suggesting upward momentum, the pair could face near-term resistance, having bounced off 1.3550 three times in the last couple of weeks. If it manages to break above, it could face the 1.3600 psychological handle, which has provided resistance since early July. On the flip side, support below the median Bollinger Band of 1.3446 can be found at the near-term swing low of 1.3420. A break below could head towards the lower BB, coinciding with the month's low at 1.3350.

Source: SpreadEx | GBPUSD