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Weak economic outlook weighs on pound

2023-03-10
1086

Sterling has fluctuated against the dollar this week. The UK's economic outlook is weak, which is not conducive to the pound. The UK is the only G7 economy that has not yet recovered to its pre-epidemic size. It will take a quarter to recover to this level.

The U.K. budget, due next week, will include high-profile growth forecasts, offering clues to the outlook for the U.K. economy. However, as investors are currently focusing on the dynamics of the Federal Reserve, the trend of the pound depends entirely on the face of the dollar.

The better-than-expected GDP data in the UK may cause the Bank of England to raise its economic forecast. The UK's GDP growth in January was 0.3%, stronger than expected, which means that the Bank of England may raise its forecast for the first quarter GDP. The Bank of England had previously The UK economy is expected to grow by -0.1% in the first quarter. RBC said the services sector was the main driver of economic growth in the UK in January.

Key data is in focus in the coming weeks ahead of the Bank of England's March 23 policy meeting. UK employment and wages data are due on March 14. British Chancellor of the Exchequer Hunt will also announce a new budget next week. If there are signs of further slowdown in wage or inflation data, it will be negative for the pound, otherwise it may give some support to the pound. The market currently predicts that the possibility of the Bank of England raising interest rates by 25 basis points at the policy meeting on March 23 is 91%, and there is a very small chance of not doing anything.

BoE monetary policy continues to weigh on the pound. The BoE is unlikely to do much to help the pound. As long as the BoE maintains its cautious approach (as opposed to the Fed and ECB), the pound may still face downward pressure. The Bank of England always seems to be behind developments rather than aggressively fighting high levels of inflation, raising concerns that its monetary policy may lag behind the yield curve, which means monetary policy will continue to weigh on the pound.

The Bank of England intends to apply to the court to place Silicon Valley Bank UK subsidiary (SVB UK) in the bank's insolvency proceedings. The Bank of England said in an emailed statement that the inclusion of the bank in bankruptcy means that the UK Financial Services Compensation Scheme FSCS will pay eligible savers as soon as possible to pay insured deposits, up to a limit of 85,000 pounds (up to 170,000 pounds for joint accounts). GBP). SVB UK's other assets and liabilities will be administered by the bank's liquidators in bankruptcy and the recovered funds will be distributed to its creditors. SVB UK has limited operations in the UK and none of the key functions supporting the financial system exist. During this time, the company will stop making payments or accepting deposits.

The British Chamber of Commerce (BCC) said the British economy is on track to avoid a technical recession this year. In its quarterly economic survey report, the BCC said: “The economy is expected to shrink by 0.3% in 2023, but will avoid two consecutive quarters of technical recession.

Shrinkage in the first quarter followed by slightly greater than zero growth in the subsequent three quarters. The British Chamber of Commerce raised its forecast for 2023 sharply from the previous forecast of -1.3% due to a more resilient economic performance at the end of 2022. Household spending held up well, although real disposable income fell as energy costs rose, inflation outpaced wage growth, the end of the income tax exemption and higher mortgage payments. Exports in the second half of 2022 were also stronger than expected, partly due to higher demand for fuel and machinery. However, this trend is not expected to continue, with exports projected to decline by 4.5% in 2023. ”

The daily K-line chart of GBP/USD shows:

The downward trend of bears is in good shape, and the short-term low is quickly rebounded, but the downward trend is still the same. The upper suppression focuses on around 1.21405, and the lower support focuses on around 1.19045. As shown in the picture:


[Disclaimer] This article only represents the author's own opinion, and does not provide any express or implied guarantee for the accuracy, reliability or completeness of the content contained, and does not constitute any investment advice. assumes all risk and responsibility.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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