2023.08.17 2023.08.17
Pound finds drawbacks. Forecast as of 17.08.2023Dmitri Demidenkohttps://www.litefinance.org/blog/authors/dmitri-demidenko/
The reports on UK employment and inflation let the derivatives market raise the expected BoE rate ceiling to 6%. The pound stopped falling. Will it resume rising? Let us discuss the Forex outlook and make up a GBPUSD trading plan.
Weekly Pound fundamental forecast
Why is GBPUSD not rising? It would seem that the record increase in average wages, the acceleration of the UK inflation in the service sector, and the increase in the expected BoE rate ceiling to 6% should have boosted the pound against the US dollar. However, the sterling continues to stagnate. In Forex, the efforts of both parties are important. There are always two currencies in any pair, and it is difficult to compete with the greenback gaining back its strength.
In April-June, the average increase in wages, excluding bonuses, in the UK will be 7.8%, which is a record high since the start of accounting in 2021. The indicator, for the first time in a year, exceeds the inflation rate, which in theory, should support consumer spending and the economy as a whole. Wages, including bonuses, have risen the fastest in history outside of the pandemic.
Dynamics of average pay in UK
Source: Financial Times.
However, there are always drawbacks. Just as the 0.5% expansion in UK GDP in June was due to a large number of working days, the main reason for the record growth in wages was named colossal payments in health care and social security. In these industries, wages jumped by 25%. In general, in the public sector, payments rose by 9.6%, which is above the average for the economy.
Is the UK economy really as strong as it looks? The inflation data will shed light on this. A smaller-than-expected CPI slowdown, coupled with service inflation picking up from 7.2% to 7.4%, the highest since 1992, let the derivatives market raise the BoE rate ceiling to 6%. It means three rate hikes by 25 basis points each until the end of the year, while the Fed and the ECB most likely, put an end to monetary restrictions. Is it time to buy sterling?
Dynamics of UK inflation
Source: Financial Times.
Speculators are not willing to buy the pound yet. Societe Generale notes that it would be surprising if the BoE doesn’t hike the rate. However, the central bank is, in any case, at the end of the monetary tightening cycle. In addition, quite recently, expectations for the BoE rate peak were 6.5%. This factor was priced in GBPUSD. As soon as it was lowered, the pair began to fall.
Investors are currently focused on the resilience of economies to monetary restrictions and the question of how long rates will be kept high. The US domestic data is strong; the Fed will hardly turn dovish and start lowering interest rates before March 2024. So, the US dollar is naturally rising.
Weekly GBPUSD trading plan
The pound still looks weaker than the US dollar. Only if the GBPUSD goes above 1.276 and 1.28 one could consider entering longs betting on the monetary policy divergence. Otherwise, the price should be corrected down to 1.261 and 1.257.
Price chart of GBPUSD in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
Rate this article:
( {{count}} {{title}} )