Market worries about the UK's economic outlook, the pound and the US continue to weaken

GBP/USD fell on Wednesday, hitting a new low of 1.1759 since late March 2020. In addition to the bearishness of a surging dollar, traders are also worried about the outlook for the UK economy, which is already under pressure from double-digit inflation, recession risks and the aftermath of Brexit. The Bank of England has raised interest rates five times since December in an attempt to prevent high inflation from stubbornly taking root in the UK economy.

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The U.S. Commodity Futures Trading Commission’s CFTC foreign exchange business position report shows that as of 2022-07-12 the week (hands) long sterling positions decreased by 3997 lots to 174748 lots. Sterling investors hope the government will try to avoid being distracted by political scandals and focus more on providing coherent policy for the economy after Brexit, but the jury is still out. Sterling may lack a new direction until a new prime minister takes office.

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All components of the UK economy contributed to the better-than-expected data: Manufacturing production rose by 2.3% in May, compared with the previous consensus forecast of 0.2%. Industrial output rose 0.9%, matching expectations, and construction output rose 4.8%, beating expectations for a 4.4% rise. The all-important services index, which is important because it represents the largest sector in the UK economy, rose 0.1%, beating expectations for -0.1%.

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The recent trend of the pound has been weak, and the dominant factor is the continued strength of the US dollar index, which has a depressing effect on it. In fact, the UK's May GDP growth, released in the middle of the week, still exceeded expectations, and the strong momentum for the month was quite broad, with positive growth in services, production and construction. However, under the pressure of the United States only to focus on raising interest rates and controlling inflation with ruthless drugs, unless the Bank of England and the Federal Reserve can take a hard-line approach to raising interest rates to control domestic inflation and prevent capital loss, it will give the pound some breathing opportunity.

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Goldman Sachs believes that some positive momentum in economic growth will continue in the coming months, leading them to forecast GDP growth of +0.4% in the third quarter (previously +0.1%). Given that second-quarter growth is no longer expected to be negative, that would reduce the probability of a recession this year to 35% from 45% previously. "That's only slightly higher than the U.S., which has a 30 percent chance of a recession. But that chance is lower than in the euro zone, where Goldman economists see a 50 percent chance of a recession.

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None of the candidates to succeed Johnson as prime minister and leader of the Conservative Party have a clear lead yet, with more votes by Conservative MPs in the coming days. Uncertainty over who will win and what economic policy they will pursue, especially with regard to Northern Ireland post-Brexit, has also cast a shadow over the pound.

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While growth was stronger than expected in May, other indicators pointed to weakening momentum in the UK economy, making it more difficult for the Bank of England to fight inflation by raising interest rates without slowing the economy too much.

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The overall shorts in the market are weak, and the downward momentum of the shorts shows no signs of stopping, and it is in a state of repeatedly breaking new lows. The top suppression concerns around 1.20577, and the low support concerns around 1.16930. The MACD indicator is in the bearish area to maintain order and move down, and the RSI indicator is at 50 equilibrium. The offline side is weak in a narrow range, as shown in the figure:

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[Disclaimer] This article only represents the author's own point of view, and does not provide any express or implied guarantee for the accuracy, reliability or completeness of the content, and does not constitute any investment advice. Please read this for reference only and bear all risks. with responsibility.