Sterling has been one of the worst performing major currencies this year, falling more than 10% against the dollar as investors worried about a severe slowdown in Britain's economy, overheating inflation and heightened political uncertainty related to Brexit. Traders are also eyeing further developments in post-Brexit arrangements, which could pose risks to the pound. Prime Minister Jensen said earlier this week that Britain could unilaterally revise the trade rules governing Northern Ireland after Brexit this year.
The U.S. Commodity Futures Trading Commission CFTC foreign exchange business position report shows that as of 2022-06-28 the week (hands) long positions in sterling decreased by 6,203 to 170,968. Sterling continued to sell off as fears of a sharp economic slowdown outweighed the risk of runaway inflation. Prospects that the Bank of England will soon stop or even reverse the monetary policy cycle.
Money markets fully priced in a 25bps rate hike by the Bank of England in August and gave more than 70% probability of a 50bps rate hike. But Britain's current account deficit hit a record high in early 2022, ballooning to 51.7 billion pounds ($62.8 billion), or 8.3 percent of gross domestic product.
With temporary fiscal stimulus fading in 2H22 and continued stagnation in real incomes, coupled with Bank of England tightening and slower growth in trading partners, GDP growth will slow to 3.4% in 2022 before slowing to 2023 0.5%. The risk of a recession in 2023 has increased, given that forecast growth is near stagnation. Soaring inflation and low consumer confidence have led economists to slash their forecasts for Britain's economic performance for the rest of the year, with the Bank of England warning in May that a recession could hit Britain before the end of the year.
The three risks that could lead to a recession are (1) a more aggressive BoE rate hike to above 3% by the end of the year; (2) any shock that pushes the Eurozone into recession; (3) if the UK pmi falls below 45 . Credit Suisse expects the Bank of England to raise interest rates by a further 100 basis points in 2022, reaching 2.25% by the end of 2022, which is not as large as market expectations, which are currently expected to raise rates by about 160 basis points.
The Bank of England should gradually tighten monetary policy amid signs that an economic slowdown is more imminent than previously thought. Bank of England Governor Bailey also said the Bank of England has other options besides being prepared to take "forceful" action if it needs to tackle inflation. Their comments underscore the daunting task the Bank of England faces in containing price pressures through policy tightening without further harming the economy.
On Wednesday (June 29), the European Central Bank's annual meeting was opened in Sintra, Portugal. Fed Chairman Powell, ECB President Christine Lagarde, and Bank of England Governor Bailey were invited to attend the ECB's annual monetary policy forum and deliver speeches . Powell believes that persistent inflation is a huge threat to the economy, Lagarde said that the period of low inflation is difficult to reproduce, and Bailey admitted that the British economy is at an inflection point and people's income has been hit.
Federal Reserve Chairman Jerome Powell said in his speech that raising interest rates may slow the economy too much, but the bigger risk is persistent inflation. Lagarde said the pre-pandemic era of ultra-low inflation was unlikely to return, and she was prepared to raise interest rates "gradually" over the next six months to combat "stubbornly high inflation". BoE Governor Bailey said the BoE could choose to take "stronger action" on inflation, not ruling out a 50 basis point rate hike at a policy meeting in a month's time, provided "there are persistent signs that rising prices are a problem" ".
Steve Brice, chief investment officer at Standard Chartered Wealth Management's chief investment office, said there are two opportunities in the current market: first in Asian equities outside of Japan, and second in UK equities, and we expect that compared to the euro zone and the US, UK equities will benefit from a relatively heavier weighting of value and dividend-yielding stocks and more attractive valuations. "
Expected outperformance in UK assets could in turn provide additional support for the pound as investors around the world look for better returns. In fact, Manpreet Gill, head of strategy at Standard Chartered's FICC, said he is bullish on a handful of currencies versus the dollar over the next six to 12 months, most notably the euro and the pound.
The daily K-line chart of GBP/USD shows:
The short-term bearish momentum continued to move downward in a step-like manner within the Bollinger Bands indicator channel, and the low level touched the nodes near the lower rail for many times. The short-term short-term bearish momentum continued to move downward. Near 1.24207, the low support is about 1.18509, the MACD indicator is in the bearish area below the 0 axis, and the RSI indicator is hovering weakly below the 50 equilibrium line, as shown in the figure:
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Indonesia
2022-07-04
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