GBP/USD Makes A Deep Retreat, Despite Bailey’s Hawkish Comments
GBP/USD is showing strong signs of weakness after the 150 pip dive yesterday, and despite Baily's hawkish comments the data is weakening
GBP/USD was quite bullish during most of this month, reaching 1.2850 as the USD weakness kept buyers in control. But the price started to retreat lower slowly and yesterday we saw a decline, worth around 150 pips. The 50 SMA (yellow) turned from support into resistance, which is a sign that the trend might be changing, despite hawkish comments from Bank of England Governor Bailey.
The UK is currently confronted with a difficult macroeconomic environment characterized by high inflation and sluggish growth. These factors are expected to exert downward pressure on the value of the pound. However, there is a potential for improvement in the future, as higher interest rates could provide some upward support to the currency.
Bailey did mention high inflation, but also said that they will be driven by the economic data. The data is getting worse in the UK, which will help lower inflation, considering that the government is not increasing public sector wages and salaries. This might lead to massive protests soon which will have a negative impact on the economy and inflation, so the situation for the BOE is pretty difficult. Both sides are in play for GBP/USD, but after yesterday’s price action, we will try to sell retraces higher, probably at the 50 SMA.
Bank of England Governor Andrew Bailey’s Comments From Yesterday
- Data showed clear persistence of inflation
- We will do what is necessary
- We will be ‘evidence driven’
- It’s a worse outcome if we don’t get inflation back to target
- I expect headline inflation to come down
- The unwind of energy subsidies is on a longer track
- We have a very, very robust labour market in the UK
- The size of the labour force is smaller than at the outbreak of covid
- The economy has turned out to be much-more resilient so far but we’ve had a very sharp fall in energy prices
- We do talk quite a bit about global events
- We have to judge the rollover of fixed rate mortgages
- I’ve always bee interested to see that markets think it will be a short-term top in rates when we’re fighting a long-term inflation process
GBP/USD Live Chart
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