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Pound: it is easier to rise than to fall. Forecast as of 23.06.2022

by admin
June 23, 2022
in Forex
0


2022-06-23 2022-06-23
Pound: it is easier to rise than to fall. Forecast as of 23.06.2022

Dmitri Demidenkohttps://www.litefinance.com/blog/authors/dmitri-demidenko/

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The US monetary tightening is faster than in the UK. This factor determines the GBPUSD fate. In such circumstances, the BoE officials act unscrupulously. Let us discuss the Forex outlook and make up a trading plan.

Weekly pound fundamental forecast

A strong economy means a strong currency. The UK economy is hardly strong. Sluggish economic growth, the highest inflation in decades, and a worse current account than the US, eurozone, or Japan is a real tragedy. Wall Street Journal experts estimate the probability of a recession in the US over the next 12 months at 44%. In the UK, the recession will begin very soon. In such conditions, the GBPUSD downtrend looks logical, while bulls’ strengthening causes new sales.

In the current climate, it is difficult to expect that the GBP growth in response to the BoE’s interest rate increase by 25 basis points or the acceleration of inflation in May to 9.1% will be long-term. The BoE tightens monetary policy more slowly than the Fed does. Why should the GBPUSD rise? Yes, the UK’s inflation is moving faster than in the US. According to BoE forecasts, it will reach 11% already in 2022. The American economy can withstand aggressive monetary restrictions. However, the British weakened due to Brexit is unlikely to be able to do this.

Past experience can help the Bank of England. 9 of the 12 Fed monetary restrictions ended in a recession. BoE provoked a decline only in 50% of cases.

Recessions and interest rate dynamics

Source: Wall Street Journal.

The UK’s problems are exacerbated by the 10% pound weakening against the US dollar since the beginning of the year. If oil prices on the world market are far from the record highs reached in 2008, then in the UK, they were updated in 2022. This fact negatively affects both the cost of living and the UK’s current account. Funds are needed to solve these problems. But how to accumulate them if the UK stocks are not popular? Since the Brexit referendum in 2016, the FTSE 100 has declined 7% in dollar terms, and the S&P 500 has risen 79%.

Dynamics of stock indices

  

Source: Bloomberg.

It is not surprising that officials use verbal interventions, involving the country in a currency war. According to MPC member Catherine Mann, the Bank of England should respond to the USD strengthening by sharply raising rates. This will reduce the risk that the GBP depreciation will exacerbate domestic inflation. However, according to BoE chief economist Huw Pill, monetary policy does not achieve many goals, including the exchange rate stabilizing and adjusting the dynamics of employment or activity. The Central Bank must solve one problem, namely, curb inflation.

GBPUSD trading plan for a week

76% of Bloomberg experts believe that GBPUSD will fall to 1.15 before any rebound to 1.35 occurs. With downward pressure on Treasury yields, the pound could consolidate in the range of $1.21-1.237. Use the GBPUSD decline for entering purchases, and the growth for entering sales.

Price chart of GBPUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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