GBP/USD: What’s with all that?

Just two months ago, GBP/USD was trading at its lowest level EVER, reaching a low print of 1.03565. Today, the pair is trading near 1.1950! A lot has happened in the last 2 months to bring the pair from the brink of collapse to today’s levels. Many attributed the selloff to Liz Truss, or at least to her “mini-budget”, which would have left a gaping hole in the budget deficit. Although this may have been the straw that broke the camel's back, GBP/USD had been moving lower for months before the late September selloff. GBP/USD had formed a Year-to-Date high on February 22^nd at 1.4250! The pair had been moving lower as it became apparent that the US Federal Reserve had to begin raising rates quickly. The board finally decided that rising inflation wasn’t transitory. On April 22^nd, the pair crashed through 1.3000 and by mid-June the pair was trading 1.2000. Once at 1.2000, GBP/USD continued lower in an orderly channel until Wednesday, September 21^st. The pair closed at 1.1235, below the bottom trendline of the channel. Why had it been moving lower since 1.4200?

Source: Tradingview, Stone X

Trade GBP/USD now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

While inflation was flying high in the US, the Fed stepped up its pace of race hikes to 50bps in April. By mid-June, the Fed was hiking 75bps at a clip. Meanwhile, Bank of England was only hiking rates by 25bps at a time, as it was particularly concerned about driving the British economy into a recession. It wasn’t until its last rate hike on November 3^rd that the BOE finally hiked by 75bps to bring the cost of borrowing to 3%. GBP/USD was moving lower due to interest rate differentials. When the “mini-budget” proposal was presented, liquidity dried up in bonds, causing GBP/USD to collapse. However, despite previously not raising rates aggressively enough, the BOE did save the UK bond market, which helped the Pound recover. Now, with inflation at 11.1% YoY in the UK, and “only” 7.7% YoY in the US, its anticipated that the UK will have to hike rates higher and longer than in the US. However, there is also Prime Minister Sunak’s autumn budget which the markets still need to deal with: Increased taxes and lower spending. This may help with the BOE’s prediction of a recession coming down the pike.

Source: Tradingview, Stone X

Everything you wanted to know about the Bank of England

On daily timeframe, GBP/USD was on a mission to get to 1.2000. The price rose in an ascending wedge formation and broke out above the top of the pattern. Expectations are that price should break lower from an ascending wedge. Will price continue lower from here? Pullbacks are normal in an uptrend and a pullback to the 38.2% Fibonacci retracement level (at 1.1467) from the lows of September 26^th to the highs of November 24^th is not out of the question. However, the pair must pass through support before that level. The first support level is at the top trendline of the wedge near 1.1900. If price breaks below there, the next level of support is at the top, downward sloping trendline from the long-term channel near 1.1650, then the bottom trendline of the wedge near 1.1550. However, if price continues to move higher, resistance (previous highs) ahead of 1.3000 are 1.2293, 1.2660, and 1.2843.

So, if GBP/USD can move lower due to the Fed being more aggressive than the BOE, is the reverse true as well? Or is GBP/USD just having a bear market bounce? Watch the key support levels to see if price holds. If it does, then GBP/USD may be on its way towards 1.3000!

Learn more about forex trading opportunities.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.