Pound Sterling

Positive Market Sentiment and BoE Hawkishness Propel Pound Sterling Toward 1.3

Posted Thursday, July 13, 2023 by
Richard Adrian • 2 min read

Despite deepening fears of a recession in the United Kingdom’s economy, the Pound Sterling (GBP) strengthens following a modest correction, driven by the Bank of England’s (BoE) aggressive policy tightening measures. 

Previously, the GBP/USD pair encountered some pressure, but the general sentiment towards the Pound Sterling remains bullish. There is an expectation of further interest-rate hikes from the UK central bank as they aim to steer inflation back to its target level.

The United Kingdom’s Treasury Advisers have expressed concerns regarding economic growth, attributing it to the central bank’s aggressive policy tightening. This approach has placed a heightened burden on firms operating within the country. Furthermore, the housing sector in the UK is experiencing the impact of higher borrowing costs, leading to a sharp decline in demand for property from first-time home buyers.

Advisers to UK Finance Minister Jeremy Hunt have flagged serious concerns about the rising risks of a recession, directly attributed to the sharp increase in interest rates implemented by the BoE. The Economic Advisory Council, comprising seven members, is urging the central bank to reconsider the pace of its rate-hiking spree, which has been the most rapid in three decades. They point to certain economic indicators that suggest a potential slowdown on the horizon for the UK’s economy.

Despite a slight softening of inflation in June, with the Headline Consumer Price Index (CPI) declining to 7.9% and the core CPI (excluding volatile food and energy prices) falling to 6.9%, it is still insufficient to provide relief to BoE policymakers and deter them from implementing an interest-rate hike in August. These declines are not substantial enough to indicate victory over inflation, which further adds to the pressure on the Pound Sterling.

In light of the data and concerns raised by the economic advisers, the GBP/USD currency pair is likely to remain volatile in the near term. Traders and investors will closely monitor any updates from the BoE regarding their stance on interest rates, as well as any incoming economic data that could shed light on the potential trajectory of the UK economy. 

Uncertainty surrounding the central bank’s policy decisions and the economic outlook may result in fluctuations in the GBP/USD exchange rate, as market participants weigh the risks of recession against the potential for further rate hikes.

The Pound Sterling (GBP) has been displaying strength over the past two days, achieving a new weekly high at 1.2976. The currency pair, GBP/USD, known as the “Cable,” experienced a strong rebound after finding significant demand just below the 20-day Exponential Moving Average (EMA). This bullish move indicates a positive sentiment in the market.

With the currency pair resuming its upward movement, it is anticipated to challenge and potentially surpass the psychological resistance level of 1.3000. The breach of this key level could further boost the bullish momentum.

Traders and analysts are closely observing the Relative Strength Index (RSI) with a period of 14. A break above the 60 levels in the RSI would signal a strengthening bullish momentum in the market, potentially attracting more buyers and driving the GBP/USD exchange rate higher.

Pound Sterling
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