Forex Analysis & Reviews: 29.05.2023 - Pound sterling in limbo

Live Chat

InstaForex - Official partner of Dragon Racing

This section features the most important information about trading with InstaForex. We provide both analysis from leading experts for experienced traders and articles on trading conditions for beginners. Our services will help increase your profit potential.

Become Trader

Account Opening

See also

Trading Conditions

Forex Analytics

Charts

This section is designed for those who are just starting their trading journey. InstaForex educational and analytical materials will meet your training needs. Our experts' recommendations will make your first steps to trading success simple and clear.

Start as Beginner

How to start trading

Useful information

Training and recordings

InstaForex innovative services are an essential element of productive investment. We strive to provide our clients with advanced technical capabilities and make their trading routine comfortable as we are recognized as the best broker in this regard.

Become Investor

PAMM System

ForexCopy System

Passive investments

OYS account

Partnership with InstaForex is beneficial and top-tier. Join our affiliate programs and enjoy bonuses, partner rewards, and the possibility to travel with the team of the world-renowned brand.

Become Partner

Main Page

Partner Area

Advantages for Affiliates

Registration

This section contains the most lucrative offers from InstaForex. Receive bonuses when topping up an account, compete with other traders, and get real prizes even when trading in a demo account.

All Promo Campaigns

Bonuses

Contests

Events

Holidays with InstaForex are not only pleasant but also useful. We offer a one-stop portal, numerous forums, and corporate blogs, where traders can exchange experiences and become successfully integrated into the Forex community.

Full details

Forums

We are in social networks

Forex humour

Forex Portal

InstaForex is an international brand created in 2007. The company provides services for online FX trading and is recognized as one of the world's leading brokers. We have won the trust of more than 7,000,000 retail traders, who have already appreciated our reliability and focus on innovations.

Learn More

History

Why Choose Us

InstaSport

Regulation

Company News

Awards

InstaForex Stars

InstaForex Offline

Headquarters

Key documents

Social Responsibility

InstaForex - Official partner of Dragon Racing

29.05.2023 01:21 PM

Pound sterling in limbo

After the publication of data on UK consumer inflation, the pound sterling did not know whether to welcome the CPI or to be discouraged. The slowdown in consumer prices was impressive: from 10.1% in March to 8.7% in April. However, Bloomberg experts predicted an even steeper decline in the annual CPI. Core inflation also disappointed. The core CPI accelerated to almost 7%, the highest level in more than 30 years. Curiously, its growth rates turned out to be approximately the same as in Argentina and South Sudan. As a result, GBP/USD continued its downward trajectory.

The dynamics of UK inflation

Oddly, the higher supposed peak of the REPO rate and hawkish comments of the BoE's officials don't provide the sterling with support any more. So, you may wonder what is wrong with it. The situation is indeed ugly. Following the inflation data, the derivatives market raised the expected ceiling on the borrowing cost to 5.5%. In July 2022, Bank of England Deputy Governor John Cunliffe affirmed that interest rates of 5% and above are sure to entail a debt crisis for mortgage borrowers and leveraged companies.

However, Chancellor of the Exchequer Jeremy Hunt supports further tightening of monetary policy as inflation is a source of instability. It needs to be brought down. Monetary Policy Committee Member Jonathan Haskell believes that in order for high prices not to take hold at a high level, it is necessary to proceed with increases in borrowing costs.

Dynamics of market expectations for the REPO rate

Bloomberg expects that the UK economy will face a recession in the second half of 2023. This forecast is more optimistic than the estimates of the Bank of England or the IMF. They have just said that the recession could be avoided.

The stagflation background and higher inflation than in the US and the Eurozone make the pound's position vulnerable due to lower real yields than, for example, in the United States. The European and British CPIs are roughly comparable, so the sterling and the euro are trading in sync. Both currencies are falling against the US dollar which has been extending its strength across the board. The greenback cheered the agreement between Democrats and Republicans on the national debt ceiling. This gives the Federal Reserve leverage to tighten monetary policy.

Indeed, if at the end of April the markets were actively discussing the topic of the Fed's dovish reversal in 2023 and spoke with confidence about the end of the monetary tightening cycle, then a month later the situation changed dramatically. CME derivatives now estimate the chances of a federal funds rate hike in June at 66%. This was supported by strong data on consumer spending and the PCE price index. After them, it became clear that the US economy is on a sound footing and inflation suddenly accelerated.

Technically, GBP/USD hit the first target at 1.2355 of the earlier opened short positions. The price missed several pips until then second target at 1.23. On May, GBP/USD could create a pin bar next to the important pivot level of 1.2365. A breakout of its upper border at 1.2375 will assure traders to go long. A breakout of the lower border at 1.2335 will be the reason to open short positions.

You have already liked this post today

*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.