Pound Sterling Bearish; Recession Looms For The U.S. Economy Suggest Economists
2022.06.13 12:16
After an unexpectedly higher U.S. inflation reading last Friday, chances for a 75bp Federal Reserve rate hike in upcoming FOMC meetings are rising. The Fed is expected to raise rates by 50bp on Wednesday, but the main focus will be on the quarterly summary of economic projections, including the dot-plot rate projections.
Fed policymakers may consider a steeper path of interest rate hikes this year in light of recent inflation developments. While a 50bp rate hike this month is inevitable, traders speculate on an even more significant rate hike of 75bp, and if not in June, then maybe in July.
Apart from the hawkish guidance, the focus is shifting to the broader impact of the central bank’s policies on the economy. Aggressive rate hikes have little effect on rising price pressures while the economy is cooling. Economists at Bloomberg put the chances of a recession at three in four next year, saying,
“A downturn in 2022 is unlikely, but a recession in 2023 will be tough to avoid.”
Lastly, the Bank of England is widely expected to raise its interest rate on Thursday from 1 percent to 1.25 percent. Some market participants even price in some probability of a 50bp hike, but this seems to be the much more unlikely scenario. Overall, the pound is anticipated to fall even further since the U.K. economy looks set to struggle.
GBP/USD – A Bearish Breakout
Sterling broke below 1.24, and the yearly low at 1.2155 isn’t that far away now. Bears will now focus on price breaks below 1.2240 and 1.22. If the yearly low is cleared, there might be nothing in the way of a fall towards 1.20. The former support at 1.24 could now serve as resistance.
GBP/USD daily chart.
Trading Ideas
- EUR/USD – Long at 1.0510; Short at 1.0475
- GBP/USD – Long at 1.2290; Short at 1.2240
- DAX – A long position taken at 13580 has hit the profit target at 13620; Short at 13480
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