Pound Steady After Rough Week

06/20/2022

1 minute read

2022.06.20 15:16

The British pound was slightly higher at the start of the week, and I expected a quiet session, with US markets closed for a holiday.

British pound under pressure

There was plenty of volatility from GBP/USD last week, as the currency started the week with gains, only to reverse directions and end the week in the red, the third losing week in a row.

Perhaps the biggest red flag from the pound’s slide was the break below the symbolic 1.20 level last week, for the first time since 2020. The pound has been hammered in 2022, plunging as much as 1500 points.

The BoE rate hike of 0.25% on Thursday failed to impress the markets, with GBP/USD sliding 1.37% in the Thursday session. Three of the nine MPC members voted for a 0.50% increase, and it appeared that the 0.25% was too feeble a move by the BoE, even though the benchmark rate was now at its highest level since 2009.

The markets have priced in a 60% chance of a 0.50% rise at the next meeting in August, and there will be strong pressure for the BoE to deliver a 0.50% salvo unless inflation unexpectedly begins to ease. The UK releases May CPI on Wednesday, with an estimate of 9.1%, up slightly from the April reading of 9.0%.

The dark clouds hovering above the UK economy were not good news for the struggling pound. GDP fell by 0.3% in April after a 0.1% decline in March, the first back-to-back contractions since March 2020, at the start of the COVID pandemic.

J.P. Morgan said on Friday that the likelihood of a recession in the UK has increased over the next year or two, warning that a recession in the US would spill over to the UK.

Pound Steady After Rough Week GBP/USD Daily Chart