The GBP/USD fluctuated and fell this week, weighed down by the strong U.S. dollar, and the deteriorating UK economic outlook also weighed on the pound. The UK's economic growth rate will slow down significantly in the second half of this year, and it will become the weakest economy in the G7 next year. , the growth forecast for this year and next is 3.2% and 0.5% respectively.
The U.S. Commodity Futures Trading Commission CFTC foreign exchange business position report shows that as of 2022-08-16 in the week (hands) long sterling positions decreased by 115 contracts to 156,167 contracts; British inflation is at its highest level in 40 years, exacerbating concerns about an economic slowdown concerns, and increased pressure on the Bank of England to keep prices down. Those concerns were the main factors weighing on the pound this week.
The Office for National Statistics said on the 17th that the CPI rose faster than economists expected, with prices up 0.6% from the previous month. According to statistics, the year-on-year CPI growth in many countries is at the highest level in decades. Even so, the UK data is still outstanding, surpassing the United States (8.5%) and the euro zone's Germany (8.5%), France (6.8%) and Italy (8.4%). %).
The Bank of England raised interest rates by half a percentage point to 1.75%, the first half-a-point hike since 1995. Economists estimate that the Bank of England will raise interest rates by a further 0.5 percentage points in September to 2.25%. Due to the increase in energy consumption in the autumn, it is expected that by October this year, the year-on-year increase in the UK CPI will reach a peak of 13.3%.
High inflation rate aggravates people's living burden. The Bank of England predicts that real disposable income of British households will fall by 1.75% this year. According to a survey, about 16% of British households, or nearly 4.5 million households, are currently facing "serious financial difficulties". Households in "severe financial hardship" have increased by nearly 60 per cent since October last year.
British media pointed out that the government's subsidy and tax rebate assistance programs to deal with the surge in living costs of residents are far from keeping up with the speed of price increases. The article in the British "Weekly Report" believes that alleviating the increasingly serious labor shortage may be the "most urgent task" facing the British economy. Data show that compared with before the epidemic, the British labor market has decreased by nearly 900,000 people, and about 450,000 employed people over the age of 25 have withdrawn and it is difficult to return to the labor market.
"Brexit" has also further weakened the attractiveness of the British market to the labor force of neighboring countries. Since 2019, nearly 200,000 EU citizens have lost their jobs in the UK. The Bank of England has previously warned that the imbalance between supply and demand in the labor market, coupled with high inflation, has pushed up labor costs and the risk of a price spiral.
Investors now expect the Bank of England to "beat" every other major central bank, including the Fed, for the remainder of 2022, market data shows. Capital Economics said this expected reversal could have a downside impact on the pound.
GBP/EUR remains supported near its 100-day moving average at 1.1850, a performance that reflects skepticism about the outlook for both the euro zone and the UK. But according to Capital Economics, the pound-to-dollar exchange rate is likely to be most affected by the market disappointment.
According to money market data, the Bank of England will have to raise interest rates more than any other G10 central bank for the rest of 2022 if it is to meet market expectations. Money market prices are now showing investors expecting a 154 basis point rate hike by the end of the year after U.K. data this week.
Expectations of a marked slowdown in UK economic growth may now be discouraging buyers, and the gap between interest rate expectations and the pound is likely to remain wide. Perhaps this is what matters most in forward-looking markets, so the recent sharp rise in currency markets has done little for the pound. "Investors continue to expect the Bank of England's policy to move quickly from rate hikes to rate cuts," Tompkins said.
The daily K-line chart of GBP/USD shows:
The short-term downward trend may continue, the previous low is close at hand, the top is about 1.20414, the low support is about 1.16498, the MACD indicator is hovering below the 0 axis, and the RSI indicator is weak below the 50 equilibrium line Sort and move down, as shown in the figure:
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2022-08-22
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