The British pound has edged lower today after a massive slide of 1.18% yesterday. GBP/USD is trading at 1.1944 in the European session, down 0.14% on the day. Today’s highlight is the FOMC minutes from the June meeting – investors will be interested in what Fed policy makers had to say about inflation and upcoming rate hikes.
The US dollar enjoyed broad gains on Tuesday and sent the pound below the 1.1900 line for the first time since March 2020. Risk appetite has been waning, with jittery investors flocking to the safety of the US dollar. There were two developments on Tuesday which led to the pummelling of the British pound.
Bailey, Norway strike weighing on sterling
First, Bank of England Governor Bailey, speaking after the release of the BoE Financial Stability Report, warned that the economic outlook for the UK and the rest of the world had “deteriorated materially”, mainly due to the war in Ukraine. Bailey didn’t sugarcoat his message, stating that households and businesses were “vulnerable to further shocks” over the coming months. The BoE’s rate-hike cycle is yet to make a dent in inflation, with no signs of an inflation peak. One could make a strong argument that the BoE has raised the white flag on inflation, which certainly won’t enhance confidence in the central bank.
As well, Norway’s oil and gas workers announced a strike. This would have serious ramifications for the UK, which imports about a third of its gas needs from Norway. This resulted in a spike in gas prices in the UK yesterday and raised the spectre of an energy crisis. With the markets already worried about the UK headed for a recession, the news of the Norway strike soured investors on the pound. The Norwegian government has announced that it has ended the strike by imposing a settlement on both sides, but this could prove to be a temporary solution only.
GBP/USD Technical
- There is resistance at 1.2137 and 1.2243
- GBP/USD continues to test support at 1.1940. Below, there is support at 1.1870
