British economic recession, the market lowers the target price of the pound and the United States

After the pound plummeted more than 3% on September 23, hitting a new low since 1985, the market lowered its target price for GBP/USD from 1.10 to 1.05, and advised investors to continue shorting the pound against the U.S. dollar and Swiss franc. The Bank of England raised interest rates by 50 basis points as scheduled, and expectations of a global recession strengthened. Soaring gilt yields also failed to lift the pound, which, combined with a strong dollar, could extend its current downward trend.

The U.S. Commodity Futures Trading Commission CFTC foreign exchange business position report shows that as of the week of 2022-09-20 (hands), the long position of sterling decreased by 35,000 to 197,346; New low since the mid-80s to 1.1073.

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TD Securities: The backdrop of a weaker balance of payments should put downward pressure on GBP amid the UK's proposed widening budget deficit. Our year-end forecast of 1.11 GBP/USD is now overly risky. We wouldn't be surprised if calls for parity start to emerge. For now, the euro is in a better position than the pound. EURGBP rose above 0.88, setting the stage for a test higher in the 0.90-0.92 range.

The Bank of England raised interest rates by 50 basis points as scheduled, but 3 of the 9 members supported a 75 basis point hike, and one supported a 25 basis point hike. The vote split did little to convince markets that the Bank of England was determined to tighten policy aggressively. The Bank of England predicts that the UK will enter a recession from the fourth quarter of this year. In 2022 and 2023, real household after-tax income is expected to fall sharply, while consumption growth will turn negative. All indicators point to very high recent inflation, with inflation expected to exceed 10% in the coming months, with inflation expected to peak at just under 11% in October, and energy price guarantees adding to medium-term inflationary pressures.

The announcement of the UK's fiscal plan will not boost GBP/USD in the long run; Michael Brown, head of market intelligence at Kexton London, said this is really an unexpected result, not only will the additional tax be completely abolished, but The reduction in the basic income tax rate will also be brought forward by a year (which affects the pound), which is very important. Sterling's moves are the result of two things. One is that the negative impact on growth prospects is waning. People will have more money to spend. There's also the fact that gilt yields rose by around 20 basis points on the news. This is because borrowing will have to increase, but that is closing the gap with countries like the US. However, I don't see this as any long-term signal for long GBP.

Soaring energy prices and a sharp rise in the cost of doing business have pushed inflation to around 10%, nearly five times the 2% inflation target. UK inflation is at its highest level since the early 1980s. In addition to the measures already announced, the government is expected to cut taxes across the board, cap the average household's energy bill to £2,500 and provide similar support for businesses.

Britain's Gfk consumer confidence index slipped to -49 in September, the lowest on record since records began in the mid-1970s, with little sign of a boost to consumer confidence despite Prime Minister Truss announcing more support for household energy spending . The GfK consumer confidence index was negative 44 in August, and the survey's original forecast rebounded to negative 42 in September.

Chancellor of the Exchequer Kwasi Kwarteng will present the latest measures to help households and businesses in parliament on Friday, which Staton said will be closely watched by consumers and public support for the Truss government will be a major test. GfK's economic and personal financial confidence indicators both fell to their lowest levels since the European Commission began keeping comparable records in 1985.

GBP/USD daily candlestick chart

The short-term decline has not stopped, the short-term decline has not stopped, and there is a trend of continuing downward movement. The top suppression focuses on the vicinity of 1.11601, the low-level support focuses on the vicinity of 1.05773, the MACD indicator is in the short-term area and continues to move downward, and the RSI indicator is in the short-term The area is maintained at a low level; as shown in the figure:

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