- The collapse of the British pound has become the talk of the markets and investors, as has the collapse of the Japanese yen.
- The largest losses in sterling were represented by the performance of the GBP/USD currency pair, as it fell to the support level of 1.1235 before stabilizing around the 1.1272 level at the time of the trade. writing the analysis.
- The pound continues to falter as the Bank of England is urged to make major rate changes.
- The back-to-back 75 basis point gains markets are expecting from the Bank of England set the stage for an epic disappointment for the pound.
Money markets are now priced at 200 basis points of hikes over the next three decisions, which means the bank will have to raise rates by 75 basis points in two of those meetings. That’s more than any other central bank in advanced economies is asking. Markets point to a 60% chance of a 75 basis point hike on Thursday, which would be the biggest rate hike since its 100 basis point move in 1989.
The pressure on the bank to raise interest rates with such increases comes with other central banks continuously raising interest rates. We have already seen the European Central Bank raise interest rates by 75 basis points this month, while the Swedish central bank raised interest rates by 100 basis points on Tuesday and today the Reserve US federal government raised the US interest rate by 75 basis points. The BoE needs to at least match market expectations if it is to defend current GBP valuations. This applies not only to the dollar, but also to the euro and a host of other currencies. Commenting on this, Nick Pennenbrook, international economist at Wells Fargo Securities, said: “We expect the BoE to raise its key rate by 50 basis points to 2.25% in this week’s monetary policy announcement and then will continue with a 50 basis point rate increase in November and a 25 basis point rate increase in December.
Maintain GBP/USD Support
Such a default at the September policy meeting would be quite bearish for the pound, and those looking to protect their international balance of payments might consider stabilizing current rates or placing an order to protect balances of payments. This is the time when economies prefer currency appreciation in order to minimize the impact of imported inflation: with a strong dollar, the cost of energy and goods imports for non-producing countries has become surprising .
Central banks that are not seen as tough enough in such a competitive environment risk further devaluations and higher inflation for longer. Therefore, maintaining GBP/USD support will be a political consideration for the BoE in upcoming meetings. The pound has struggled through 2022 as the bank has established itself as a reluctant wanderer, often moving in smaller increments than the market had expected.
When he responds to market expectations – as was the case in August – he has a knack for issuing such dismal directives regarding expectations that the market will sell the pound anyway. As a result, Credit Agricole analyst Valentin Marinov said: “The pound continues to collapse.“Among the reasons for the disconnect between the foreign exchange and interest rate markets appears to be skepticism among foreign currency investors about the ability of the Monetary Policy Committee to meet hawkish market expectations.
Recent trading has seen the pound fall to its lowest level since 1985 against the dollar and its lowest level since February 2021 against the euro amid fears of disappointment from the Bank of England, and the continued demand for the dollar in sluggish market conditions and expectations of a sharp economic downturn in the UK. Meanwhile, the Bank of England is expected to provide more details on its plans to sell to the market the bonds it bought under the quantitative easing program, which could raise the cost of government borrowing.
The government’s debt position will be fully understood by Friday when Chancellor Kwasi Quarting releases a ‘mini-budget’, detailing the cost of the energy price cap and further steps to be taken on taxes and intentions expenses. And the ‘mini-budget’ label should be treated like a traditional British cut. The UK’s borrowing path appears to be another concern for international investors and helps explain why the pound is hardly supported by higher bond yields.
GBP/USD technical analysis today:
GBP/USD’s downtrend is gaining strength and across all time frames technical indicators have reached oversold levels, and traders may take advantage of the recent slump opportunity to consider buying the pair currencies. I see the 1.1240, 1.1180 and 1.1090 support levels as the most suitable to think about. On the other hand, and as I mentioned before, there will be no breakout of the current trend, based on the performance on the daily chart, without breaking through the resistance at 1.2000.
The sterling dollar pair will be affected today by the market’s reaction to the decisions of the US Federal Reserve and what will be published by the Bank of England today.
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