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British Pound Latest: Inflation, Recession Fears and Strikes Cap GBP/USD Upside

British Pound Latest: Inflation, Recession Fears and Strikes Cap GBP/USD Upside

Nick Cawley, Strategist

GBP/USD - Prices, Charts, and Analysis

  • BoE’s Mann warns on imported inflation.
  • UK headline inflation is expected to rise further.

The British Pound is moving gently higher in early trade despite a raft of negatives hanging over GBP. Wednesday’s inflation release is expected to show headline inflation y/y (May) touch 9.1%, a fresh four-decade high, with some market commentators seeing an even higher print. The Bank of England recently warned that inflation may even hit 11% this year. In addition to spiraling price pressures, UK growth is slowing, leading to the inevitable cries of recession. While the UK may not be alone in this predicament, Sterling remains under pressure and will likely continue to do so. And just to top it off, the UK is today facing its biggest rail strike in three decades with more industrial action, and disruption, expected over the coming weeks.

On Monday, Bank of England MPC member Catherine Mann said that the central bank should raise interest rates aggressively to try and stem the weakness in Sterling. Ms. Mann said that the BoE needs ‘a more robust policy move’, adding that this would reduce that already high domestic inflation is further boosted by imported inflation due to Sterling’s weakness. Ms. Mann was one of three policymakers who voted for a 50 basis point rate hike at last week’s week BoE policy meeting.

For all market-moving economic data and events, refer to the DailyFX calendar

GBP/USD currently changes hands just below 1.2300, marginally higher on the session due mainly to the US dollar drifting lower. Cable has had a torrid time of late – the pair traded at 1.1935 last Tuesday – and while the recent rally will be welcome by Sterling bulls, the move higher looks fragile and unlikely to break above a zone of resistance on either side of 1.2400, in the short-term at least. All eyes on Wednesday’s UK inflation reading and any subsequent BoE commentary.

GBP/USD Daily Price Chart – June 21, 2022

British Pound Latest: Inflation, Recession Fears and Strikes Cap GBP/USD Upside

Retail trader data show 73.65% of traders are net-long with the ratio of traders long to short at 2.79 to 1. The number of traders net-long is 3.34% higher than yesterday and 7.36% lower from last week, while the number of traders net-short is 11.37% higher than yesterday and 17.98% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse higher despite the fact traders remain net-long.

What is your view on the British Pound – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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