There are too many variables in the UK, the pound and the US continue to be under pressure

There have been too many variables in the UK recently, the central bank has raised interest rates to cool down, the Queen has passed away and a new king has succeeded, and the new Prime Minister Tesla has failed to bring more certainty to the market. Sterling may continue to be under pressure, becoming another currency to fall below parity against the US dollar after the euro. Sterling looks set to remain under pressure as the UK enters recession. GBP/USD is at risk of falling to 1.10 in the coming months.

Market speculation that Truss will trigger Article 16 of the Northern Ireland Protocol, thereby negating part of the agreement with the EU. The EU could react with tariffs on British goods, which would severely hurt UK exports as the EU remains the most important trading partner.

The Bank of England is weak for any reason, and the situation could quickly turn into a typical EM bad situation with high inflation due to fiscal policy aimed at subsidizing consumption and overly accommodative monetary policy. Not only will this fail to attract foreign capital, it may even lead to an outflow of British funds. In this darker scenario, the consequences for the pound would be disastrous, with levels such as parity rising against the dollar, sparking discussions.

The UK's seasonally adjusted merchandise trade account recorded -19.362 billion pounds in July, the smallest deficit since December 2021. In detail, the services sector was the main contributor to GDP growth, rising 0.4% in July after falling 0.5% in June. Information and communications rose 1.5% and was the largest contributor to the growth in services in July. Production fell 0.3% for the month as electricity, gas, steam and air-conditioning supplies fell 3.4%.

Overall, the current monthly rate of GDP is estimated to be 1.1% higher than the pre-pandemic level (ie February 2020), and the lower than expected real GDP does not provide much comfort for the UK economic outlook. The UK economic outlook looks set to deteriorate significantly by the end of the year due to soaring inflation pressures and a cost of living crisis.

FX markets are tired of waiting for the Bank of England to actually come up with tougher moves. At best, the Bank of England met market expectations for a rate hike, when it actually raised rates by less than expected, not more than expected, weighing on the pound.

The general trend in the market is against the pound and there is no technical evidence that any recovery has begun. While a step in the right direction for consumers, it has also raised questions about the UK's future fiscal health, a situation that is likely to maintain overall pressure on the pound.