GBP/USD rises as Finance Minister Healey pledges fiscal discipline

GBP/USD is rising amid U.S. dollar weakness, whilst sterling is holding steady against the euro as investors digest Finance Minister John Healey's first major economic speech, which failed to provide much direction for the pound.

Healey announced plans to give regions greater power to attract private investment. He stressed his commitment to fiscal discipline and curbing rising costs.

Healey's pledge for fiscal discipline has helped restore the UK's credibility in the international bond market, keeping the 10-year gilt yield around 5.15%. This is some relief after the 10-year gilt yield traded around its highest level since 2008 last week.

Higher borrowing costs have been fuelled by renewed inflation concerns amid the U.S.-Iran conflict and uncertainty over Prime Minister Andy Burnham's spending plans.

Oil prices approached a seven-week high after rising 10% last week as the U.S. struck Iranian oil tankers.

On the data front, UK firms increased full-time hiring in August for the first time in four years.

The BoE is not expected to hike rates next week, but the market does see a rate hike taking place before the end of the year, offering some support to GBP.

USD eases ahead of this week’s CPI

Separately, the U.S. dollar is easing after rising on Friday following a stronger-than-expected nonfarm payroll report.

162,000 jobs were added in August, and the July report was revised higher. The data saw the market increase expectations that the Fed would hike interest rates at next week's September meeting to 65%.

The focus this week will be on U.S. inflation data, with PPI and CPI figures due on Thursday and Friday, respectively.

Higher-than-expected inflation will cement expectations that the Fed will hike rates by 25 basis points next week, boosting the dollar and potentially weighing on GBP/USD.

However, weaker inflation could see the market rein in rate hike expectations, dragging the USD lower and providing further support for sterling.

GBP/USD forecast – technical analysis

GBP/USD trades within a rising channel following its recovery from the 1.3140 June low. After running into resistance at 1.3675, the pair has eased back, finding support at the 50 EMA around 1.3485.

Buyers will look to extend the move above 1.3500, the July high, to turn attention towards 1.3650 and 1.3675, the August peak. A break above 1.3675 would create a higher high, extending the bullish move towards 1.3700.

On the downside, a break below the 50 EMA at 1.3485 would open the door to 1.3450, the falling trendline support, followed by the 200 EMA at 1.3420. Below here, sellers could gain traction towards 1.3350.