GBP/USD dips below 1.1200 on UK political/economic instability. US consumer sentiment improved as inflation expectations rose. UK Prime Minister Liz Truss makes a U-turn on corporation tax, raising it by £18 billion. , The pound extends its losses amid two weeks of turmoil over British Prime Minister Liz Truss’s mini-budget, which ended with Chancellor of the Exchequer Kwasi Kwarten replaced by James Hunt as Prime Minister Truss tries to calm markets. In addition, the Bank of England ended its extraordinary buying program as planned, buying almost 2 billion pounds on Friday. At the time of writing, GBP/USD is trading at 1.1177, below its opening price, after hitting an intraday high of 1.1366. GBP/USD ENTERS UK POLICY DECISION; US MIXED ECONOMY US stocks fall sharply, a reversal of Thursday’s reaction to the US CPI. Federal Reserve officials reiterated that inflation is high, the labor market is tight and more rates are coming. San Francisco Fed Mary Daly said the federal funds rate (FFR) could rise to around .5-5.0 percent as the US central bank does its best to tame inflation. As a result, GBP / USD fell, as investors strengthened the dollar, raising expectations for further Fed tightening. Meanwhile, the US dollar index rose 0.75% to 113,303, supported by rising yields from the restructuring of US government debt. It’s worth noting that the US 10-year yield is up five basis points, or .0%. On the data side, US retail sales disappointed investors, while University of Michigan consumer sentiment beat August numbers. However, US inflation expectations rose to 5.1% on a one-year horizon, compared to .7% last month. , On the UK side, Prime Minister Liz Truss replaced former chancellor Kwarteng with James Hunt and raised corporation tax from 18 percent to 25 percent, raising £18 billion a year. Meanwhile, the Bank of England ended its purchase program aimed at stabilizing markets, although Gilts, the 30-year bond, rose 26 basis points to yield .80%. GBP/USD next week. Traders should be aware of events in the UK over the weekend as speculation that Liz Truss may step down as Prime Minister is expected to rally the pound. Otherwise, US central bank expectations and political uncertainty in the UK favor the dollar.

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