GBPUSD is trying to form an uptrend following the massive sell-offs in late September. Despite having some difficulties, the trend is continuing after a month and a half, with the pound reaching the levels of August. But the British currency is expected to pass a tough test.
The new government, led by Prime Minister Rishi Sunak and Treasury Secretary Jeremy Hunt, is planning to unveil a package of measures aimed at stabilizing the U.K. budget on November 17. A previous strategy by Liz Truss's team received a storm of criticism from politicians and investors, eventually leading to her resignation.
Sunak had already expressed his position: there are no easy ways out of the current situation, so tax increases and budget cuts can be a good call. In general, the financial community reacted positively to the course chosen, triggering the GBPUSD rise from historic lows by 14.5%.
However, there is still a question: how can the UK economy withstand simultaneous fiscal, tax and monetary tightening? Before the new government gets a firmer grip on its position, this issue is likely to be postponed.
Today's inflation data is making things even more complicated. Price hikes in the UK exceeded 11%. Therefore, the Bank of England must be decisive in hiking its key rate in December. With US inflation now showing the first signs of a decline, this may further strengthen the pound against the dollar.
GBPUSD is likely to keep rising in the coming weeks, especially if Sunak and Hunt's plan will get positive feedback from the investment community. In order to reduce the risk, buy orders can be placed closer to the current uptrend line, i.e. the range of 1.15-1.16.
The following trading options can be suggested:
1) Buy GBPUSD at the current price. Take profit 1 - 1.203. Take profit 2 - 1.22. Stop loss - 1.175.
2) Buy GBPUSD as it moves towards the level of 1.16. Take profit 1 - 1.175. Take profit 2 - 1.203. Stop loss - 1.15.
Traders, at their discretion, may use a Trailing stop instead of a fixed Stop loss.