British king succeeds, central bank delays interest rate decision

King Charles III of the United Kingdom will be officially sworn in at St. James's Palace at 10:00 am local time on the 10th; due to the national mourning, the Bank of England postponed the interest rate decision for the first time in 25 years, from September 15 to September 22; The rate hike bets have cooled, with a 35% chance of a 75 basis point hike and a 65% chance of a 50 basis point hike.

The U.S. Commodity Futures Trading Commission CFTC foreign exchange business position report shows that as of the week of 2022-09-06 (hand) GBP long positions increased by 16,821 to 189,617 lots; GBP/USD hit a new low since 1985 to 1.1404 intraday. The outlook for Britain's debt is worrying, with Bank of England policymakers failing to reinforce expectations of more aggressive interest rate hikes in testimony before the UK parliament's finance committee.

Recently, the pound has remained close to its lowest level against the dollar since 1985 and its lowest level against the euro since June this year. Among the world's major currencies, it is the third worst performing currency in 2022. The general trend in the market is against the pound and there is no technical evidence that any recovery has begun. Joe Manimbo, senior market analyst at Western Union, said: "While this move is a step in the right direction for consumers, it also raises questions about the UK's future fiscal health. , which is likely to maintain overall pressure on the pound.”

GBP/USD's path of least resistance remains to the downside and any rebound should be seen as a short selling opportunity on rallies. The outlook for the pound will be underpinned by new Prime Minister Leeds Strath's energy bill caps that will slash future inflation expectations and could mean the UK economy avoids a recession.

Britain's new Prime Minister Truss has proposed a 30 billion pound tax cut plan and proposed a cap on household energy bills, adding to worries about Britain's debt outlook. Bank of England policymakers failed to reinforce bets on more aggressive rate hikes when they testified before the UK parliament's finance committee on Wednesday.

Prominent economists say the UK government will cap the annual price of British natural gas at £2,500 over the next two years, taking the prospect of a stronger pound one step closer to 2022. However, the move effectively kept UK inflation close to current levels and avoided the prospect of a recession.

According to the proposal, a peak of 16.5% in the second quarter of 2023, without EPG, and a peak of 10.2% in the fourth quarter of 2022. However, the cost of the Energy Bill cap is a potential headwind for the UK economy and sterling, as the cost will be financed by borrowing. Truss said the cost had not yet been calculated but would be brought to parliament. Some worry that markets may be reluctant to fund such borrowing, setting the stage for Britain's debt crisis.

Shahab Jalinoos, global head of foreign exchange strategy at Credit Suisse, said a higher interest rate environment is needed if the UK is to attract enough foreign investor capital to support the pound. He found that the Bank of England's apparent reluctance to aggressively raise interest rates proved to be a key negative for the pound.

Dominic Bunning, a strategist at HSBC, said: "This year, the pound has been heavily influenced by broader risk appetite...the relationship between the pound and a range of other variables, with equity volatility often being the main driver of the pound. But The impact of interest rate differentials has actually outweighed the impact of risk appetite. This should make the BoE's rate hike path even more important."

With this in mind, HSBC found that BoE policies and communications have completely dragged down the pound. HSBC says the Bank of England has been too slow to challenge inflation by raising rates (specifically, market expectations show investors have been expecting more rate hikes from the Bank of England than the bank has actually raised rates)

GBP/USD daily candlestick chart

The downward trend of the bears is good, the low level is supported in the short term and then fluctuates. The bulls have signs of waiting for an opportunity to enter the market. The top suppresses and pays attention to the vicinity of 1.17583, and the low level support pays attention to the vicinity of 1.13740. There are corresponding signs of market buying. The bearish area maintains a weak upward trend, as shown in the figure:

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