GBP Sentiment Weakening
The British Pound remains under heavy selling pressure as we head into the back end of the week. The pound has been the firm underperformer among the G10 pack this week as concerns over the energy crisis and supply chain issues there continue to dog the outlook. Despite a hawkish shift at last week’s BOE meeting, sentiment towards the pound has Deteriorated sharply over the recent intensification of these issues. The BOE noted that there was residual uncertainty within its outlook, linked to the pandemic, and events of the last fortnight in the UK are a stark reminder of the wide-reaching disruption caused by the pandemic, as well as regulatory changes post-Brexit.
Furlough Scheme Ending Amidst Energy Crisis
Adding to the issues facing the UK economy this week is the fact that today marks the end of the government’s furlough employment scheme. The initiative, which saw the government paying as much as 80% of the wages of workers who would otherwise have lost their jobs from struggling companies, has been in place since the beginning of the pandemic and has helped support almost 12 million workers. Industry leaders are now warning of massive jobs losses over coming months as a result of the scheme ending, which could seriously damage the UK economic recovery. Even more worrying is the proposed cut in universal credit which is due to come into effect next week with UK charity “Crisis” warning that around 100k private tenants risk eviction as a result of the move. Given the current backdrop of the energy crisis hitting Britain, the near term economic prospects appear to have dwindled rapidly, reducing the purchasing power
Speaking for the second time this week, BOE governor Bailey had a more tempered message for the markets. The BOE chief warned that the UK economy is now forecast to return to pre-pandemic levels slightly later than expected, with the BOE now pegging early 2022 as the likely time for a return to pre-pandemic growth.
Downside Risks Growing
Given the risks to the near term outlook posed by Brexit complications and COVID complications, as well as the risk of jobs losses this winter, there are clear downside risks for the BOE meaning that this forecast might be delayed further still. For now, the market is still pricing a rate hike by February. However, this pricing could easily shift if the situation deteriorates further in the coming months.
Technical Views
GBPUSD
The sell off from the triangle break has really gathered pace this week with rice clearing several key levels. The latest to break was the 1.3461 level. While price holds below 1.3570 (key level) the focus is on a continuation lower, supported by bearish indicators readings, with 1.32 the larger target for bears.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.