empty
07.08.2023 01:22 PM
The pound has removed the blindfold

Everything eventually comes to an end. The good and the bad. It seems that the best days of the British pound are now behind us. Sterling, which had been leading gains in the G10 currency race for a long time, lost ground in August. Even raising the interest rate by 25 bps to 5.25% did not help. The Bank of England called its monetary policy restrictive for the first time. This suggests that the peak of borrowing costs is already close. If so, then the main advantage of GBP/USD has either played out or is about to do so.

Back when UK inflation continued to rise at 10% or more by the end of the first quarter, while it was decreasing in the US, investors were betting on the BoE's borrowing costs rising to 6.5%. This secured the favorite tag for the pound. However, the CPI's slowdown to 7.9% seems to have removed the blindfold from the sterling fans' eyes. How can one talk about 6% or more now? The economy is already shaky, and on top of that, the central bank will continue to hike rates. Do you want to completely ruin it?

Unlike most G7 countries, Britain will only be able to return to pre-pandemic levels in the third quarter of 2023. Others have done that a long time ago. The US looks good these days, despite the Federal Reserve's aggressive cycle of monetary tightening. Investors, given that it is nearing the end, prefer currencies of those countries that can please it with economic growth. Unfortunately, Great Britain is not one of those.

UK GDP

This image is no longer relevant

Back in 2022, the BoE forecasted a prolonged recession. The fact that Britain managed to avoid it became the catalyst for the GBP/USD rally. However, now investors have sobered up. They understand that the latest BoE estimates indicate weakness, not strength in the economy. Modest growth of 0.5% in 2023 and 2024, followed by +0.25%. BoE Governor Andrew Bailey and his colleagues believe that the monetary tightening will begin to bite in the future. Chief economist Huwe Pill claims that the rate increase from 0.1% to 5.25% is already working. The labor market is cooling down, which will ultimately slow down inflation.

Unemployment in Britain is rising, and local companies are hiring new permanent employees through recruitment agencies at the slowest pace since mid-2020. At that time, the country was under COVID-19 isolation. On the other hand, salaries are increasing very rapidly. However, looking at their slowdown in the US, one can assume that Great Britain will follow suit.

Bank of England GDP forecasts

This image is no longer relevant

This image is no longer relevant

This week, the key events for the pound will be the GDP data for the second quarter and US inflation for July. The acceleration of consumer prices in the US amid a weak economy in Great Britain is an argument in favor of extending the peak for GBP/USD.

Technically, on the daily chart, there was a retest of the lower band of the ascending trading channel. The rebound indicates the bulls' weakness. At the same time, falling below support level at 1.2685 may become the basis for building up the shorts formed from 1.277.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

XAU/USD. Analysis and Forecast

Gold is declining below the $3300 level today. U.S. PCE data met expectations. A shift in trade flows is helping the U.S. dollar regain positive momentum. This is also undermining

Irina Yanina 17:37 2025-05-30 UTC+2

Inflation Is Almost Under Control

While the euro continues to hold its ground against the dollar, European Central Bank (ECB) Governing Council member Fabio Panetta indicated during an interview today that inflation in the eurozone

Jakub Novak 13:40 2025-05-30 UTC+2

USD/CAD. Analysis and Forecast

The USD/CAD pair is attempting to regain positive momentum today, though traders remain cautious ahead of the key U.S. Personal Consumption Expenditures (PCE) Price Index release. As a preferred inflation

Irina Yanina 13:22 2025-05-30 UTC+2

EUR/USD. Analysis and Forecast

The EUR/USD pair continues to struggle to recover after rebounding from the 1.1200 level reached earlier, showing a moderately negative bias, although the decline remains limited. The U.S. dollar

Irina Yanina 13:19 2025-05-30 UTC+2

Legal Disputes Between Trump and Companies Over Tariffs Will Negatively Impact Markets (There Is a Likelihood of Continued Decline in Bitcoin and Litecoin Prices)

Global markets are significantly influenced by events occurring in the United States, where both political and economic spheres continue to swing like a pendulum. Earlier this week, after the U.S

Pati Gani 11:11 2025-05-30 UTC+2

More Time is Needed

Dallas Federal Reserve Bank President Lorie Logan indicated yesterday that it might take some time before policymakers understand how the economy will react to tariffs and other policy changes

Jakub Novak 10:53 2025-05-30 UTC+2

The ECB Should Not Delay Rate Cuts

While the euro is trying to regain its monthly highs after a fairly significant correction seen this week, a survey of several economists shows that the European Central Bank

Jakub Novak 10:49 2025-05-30 UTC+2

Markets Demand an Appeal

The S&P 500 started the day strong but ended on a downbeat note. Initially buoyed by the U.S. Court of International Trade's ruling that the White House's tariffs were illegal

Marek Petkovich 10:33 2025-05-30 UTC+2

What to Pay Attention to on May 30? A Breakdown of Fundamental Events for Beginners

Several macroeconomic reports are set to be released on Friday, but none are deemed particularly significant. In Germany, the inflation report for May will be released, with expectations

Paolo Greco 06:51 2025-05-30 UTC+2

GBP/USD Overview – May 30: Justice Has Prevailed, but for How Long?

The GBP/USD currency pair closed below the moving average line on Thursday, and the dollar strengthened for three consecutive days. However, everything changed in the second half

Paolo Greco 03:51 2025-05-30 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.