GBP/USD Forecast: Difficult to bet on a steady pound recovery
(Eren Sengezer – FXStreet)
– GBP/USD been struggling to gain traction following Tuesday’s sharp decline.
– Political drama in the UK is likely to continue to weigh on the British pound.
– The upbeat market mood early Wednesday helps GBP/USD limit its losses for the time being.
GBP/USD has recovered toward 1.2000 in the early European morning following Tuesday’s steep drop but failed to preserve its momentum. The political drama in the UK and growing recession fears should continue to weigh on the pair in the near term.
Gas prices in the UK hit three-month highs on Tuesday with the ongoing strike at Norway’s state-backed Equinor threatening further cuts to UK’s gas imports. The British economy relies heavily on energy imports and it becomes more and more likely for the economy to tip into recession before the end of the year, causing the sterling to lose interest.
Meanwhile, several Tory MPs, most notably Finance Minister Rishi Sunak and Health Secretary Sajid Javid, have quit British Prime Minister Boris Johnson’s government. Although Johnson can technically hold his position for another year after having survived the no-confidence vote, he is now facing heavy pressure. Although it’s difficult to figure out the implications of these political developments on the economic outlook, investors are likely to stay away from the pound amid heightened uncertainty.
Earlier in the day, Bank of England (BOE) Chief Economist Huw Pill noted that he would be willing to back more rapid rate hikes than the string of 25 basis point increases imposed so far, if data showed it necessary. This hawkish comment, however, failed to help the pair hold its ground.
Later in the day, the ISM Services PMI will be looked upon for fresh impetus. The Federal Reserve will release the minutes of the FOMC’s June monetary policy meeting as well. Meanwhile, US stock index futures are down between 0.15% and 0.2% on the day. The risk sentiment has been driving the dollar’s valuation and another bout of flight to safety could boost the greenback in the second half of the day and vice versa.
GBPUSD Technical Analysis
Static support seems to have formed at 1.0930 for GBP/USD. With a four-hour close below that level, 1.0900 (static level, psychological level) aligns as next support before the pair could target 1.0800 (psychologically level).
On the upside, first resistance is located at 1.2000 (psychological level, static level). The pair needs to flip that level into support in order to extend its correction toward 1.2050 (static level, 20-period SMA on the four-hour chart) and 1.2100 (psychological level).
Pound stabilizes after tumble
(Kenny Fisher – MarketPulse)
The British pound has edged lower today after a massive slide of 1.18% yesterday. GBP/USD is trading at 1.1944 in the European session, down 0.14% on the day. Today’s highlight is the FOMC minutes from the June meeting – investors will be interested in what Fed policy makers had to say about inflation and upcoming rate hikes.
The US dollar enjoyed broad gains on Tuesday and sent the pound below the 1.1900 line for the first time since March 2020. Risk appetite has been waning, with jittery investors flocking to the safety of the US dollar. There were two developments on Tuesday which led to the pummelling of the British pound.
Bailey, Norway strike weighing on sterling
First, Bank of England Governor Bailey, speaking after the release of the BoE Financial Stability Report, warned that the economic outlook for the UK and the rest of the world had “deteriorated materially”, mainly due to the war in Ukraine. Bailey didn’t sugarcoat his message, stating that households and businesses were “vulnerable to further shocks” over the coming months. The BoE’s rate-hike cycle is yet to make a dent in inflation, with no signs of an inflation peak. One could make a strong argument that the BoE has raised the white flag on inflation, which certainly won’t enhance confidence in the central bank.
As well, Norway’s oil and gas workers announced a strike. This would have serious ramifications for the UK, which imports about a third of its gas needs from Norway. This resulted in a spike in gas prices in the UK yesterday and raised the spectre of an energy crisis. With the markets already worried about the UK headed for a recession, the news of the Norway strike soured investors on the pound. The Norwegian government has announced that it has ended the strike by imposing a settlement on both sides, but this could prove to be a temporary solution only.
- There is resistance at 1.2137 and 1.2243.
- GBP/USD continues to test support at 1.1940. Below, there is support at 1.1870.