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The gradual decline in the Bank of England’s repo rate and its large value enhances the attractiveness of British assets, enhances capital flows, and restricts the scope of deposits. British pound against the US dollar Correction. Let’s discuss this topic and make a trading plan.
Weekly fundamental forecast for the British pound
The Bank of England’s decision to keep the repo rate at 5.25% could be viewed as a pessimistic move. While there were no changes to monetary policy, the Bank of England described its decision as carefully balanced and noted that the latest data did not significantly change the path of inflation’s decline. Andrew Bailey expressed satisfaction with the CPI falling to 2%, and financial markets interpreted the central bank’s speech as a signal of an imminent easing of monetary policy, raising the possibility of a rate hike in August from 32% to 50%. This development led to a decline British pound against the US dollar Quotes.
UK Repo Rate and Inflation
Source: Bloomberg.
The pound has performed poorly this month, but speculators continue to favor the currency. Asset managers and hedge funds have maintained maximum long positions in the British pound since the end of September. The British currency is trying to outperform the US dollar and become a leader among the G10 currencies, as the Federal Reserve and the Bank of England will cut interest rates from a high baseline. Washington will reduce interest rates from 5.5%, and London will reduce them from 5.25%. Moreover, both regulators intend to do this very slowly, in order to maintain the high attractiveness of US and UK assets and promote capital inflows.
Net speculative positions in British pounds
Source: Bloomberg.
The political background supports the British pound. Unlike the National Rally or the New People’s Front in France, the Workers’ Party, which leads in opinion polls leading up to the elections, does not intend to change anything radically. Their policy is seen as the exact opposite of Liz Truss’s, which has collapsed British pound against the US dollar Almost to parity.
In fact, not everything is as good as it might seem at first glance. The Labour Party’s ambitious plans to raise GDP growth to 2.5% seem out of touch with reality. According to Bloomberg, the pound in the UK will reach 2% at best. Meanwhile, the planned increase in budget spending will require at least 20 billion pounds.
Therefore, the chances of the Labor Party winning the general elections scheduled for next July 4 provide support to the pound. However, events may not develop in line with investors’ expectations. The main driver of sterling’s growth against global currencies is the high repo rate rule and the slow easing of monetary policy by the Bank of England. The fact that Andrew Bailey and colleagues are likely to start the monetary expansion cycle before the Fed is pushing GBP/USD rates lower.
In general, the pound sterling, along with its American counterpart, is in balance. While selling deals started at 1.2715, targets were at 1.264 and 1.259, as discussed previously. strategyhas made profits, it is important to remember that a significant decline in the pair may not occur until the US presidential election becomes the primary focus of investor attention.
Weekly trading plan for GBP/USD
the British pound against the US dollar The pair is likely to reach support levels near 1.259, 1.2545, and 1.25. A bounce from these levels may serve as a buy signal with a subsequent move to consolidation. Long trades on British pound versus Japanese yen Looks attractive after BOJ intervention. In addition, long trades on… British pound to Swiss franc It also looks promising after the political risks in France have diminished.
GBPUSD price chart in real time mode
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