• The pound's reversal from 1.1645 extends below 1.1500.
• The sterling loses ground as the Sunak effect wanes.
• The US dollar appreciates ahead of the Fed's monetary policy meeting.

Sterling’s reversal from last week’s highs at 1.1645 accelerated on Monday, reaching levels below 1.1500. The cable is on the defensive at the start of the week against a stronger USD ahead of the Fed’s monetary policy meeting.

The sterling resumes its downtrend as the Sunak effect wanes

The positive impact triggered by the appointment of Rishi Sunak as British Prime Minister last week, which pushed the GBP to its highest levels in six weeks, seems to have waned. Bearing in mind the challenges ahead for the new cabinet, a sustained GBP rally was highly unlikely,

Beyond that, the focus this week has moved to the US Federal Reserve’s monetary policy meeting. The bank is widely expected to deliver the fourth consecutive 0.75% rate hike next Wednesday, which is stimulating demand for the US dollar.

The Bank of England is also expected to deliver another 0.75% hike on Thursday in an attempt to tame the soaring inflation pressures. The market, however, seems reluctant to place large GBP bets.

The new UK cabinet, and especially the confirmation of Jeremy Hunt as Chancellor of the Exchequer has calmed the market, which makes unnecessary an aggressive move to defend the pound. Furthermore, the prospects of an upcoming recession and the softer stance recently adopted by some of the world’s major central banks suggest that the BoE will soon follow suit and start slowing down its monetary normalization cycle.

Technical levels to watch