Sterling Under Pressure Following Gov. Bailey’s Comments

Sterling was a notable laggard in the G10 space at the close of London today. The pound’s widespread weakness can be attributed to comments from Bank of England (BoE) Governor Andrew Bailey at the ECB Forum on Central Banking, in Sintra.

Bailey signalled that UK interest rates would likely remain ‘higher for longer’ due to persistent inflationary pressures. You will recall that headline inflation remained unchanged at 8.7% in the twelve months to May, and YoY core inflation (excludes food and energy prices) jumped 7.1%, which according to Bailey, is a specific issue facing the UK economy. Bailey’s commentary weighed on the GBP, essentially ramping up the risks of a recession through excessive policy firming.

Money markets also price additional rate hikes with a terminal rate north of 6.0%. Importantly, markets forecast no rate cuts this year and for most of 2024 until September, where a 0.25% cut is anticipated.

Higher Timeframe Technical View

The technical position for GBP/USD reveals price fading long-term resistance on the weekly scale at $1.2767, boasting historical significance as far back as 2016. Consequently, GBP selling should not surprise. Support on the weekly scale is relatively nearby, nevertheless, in the shape of a trendline resistance-turned-support taken from the high of $1.4250. Meanwhile, on the daily chart, I see the currency pair testing the waters of support from $1.2665, which shares chart space with the nearby 50-day simple moving average at $1.2539.

Regardless of the technical structure, trend direction favours buying on both weekly and daily timeframes, with clear-cut uptrends evident.

Short-Term Technical View

As seen from the H1 timeframe, we came within striking distance of clocking the $1.26 psychological level (sat just north of support coming in at $1.2590) and have, at the time of writing, observed a moderate pullback unfold in early US hours. Should the market extend recovery gains beyond the current resistance at $1.2648, not only would this help confirm a bullish presence at daily support mentioned above at $1.2665, I see limited H1 resistance until around $1.27, which could be sufficient to encourage a short-term bid.

Charts: TradingView

DISCLAIMER:

The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives can be risky; losses can exceed your initial payment. FP Markets recommends that you seek independent advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.