Pound yawns after Bailey warnings

The British pound is trading quietly on Monday, as the currency markets have started the week with a whimper.

BoE’s Bailey says dark times ahead

BoE Governor Bailey testified before lawmakers earlier today, and his message was a grim one. The BoE has predicted that soaring inflation could top 10%, and Bailey today admitted that “this is a bad situation to be in”.  Bailey said that the Ukraine war could cause a further energy shock and that his concern about the surge in food prices was “apocalyptic”.

Bailey gets full credit for not sugar-coating what is a difficult economic situation, but his candidness will not help support the struggling pound, which hasn’t posted a winning week since mid-April. I appreciate Bailey’s honesty, but the BoE has run into a credibility problem with its rate policy in recent months, and it’s questionable whether his message that dark times lie ahead is the way to restore confidence in the central bank.

The economic picture in the US is brighter, but the Fed’s aggressive policy will lead to a slowdown in growth. The big question is can Fed Chair Powell guide the economy to a soft landing and avoid a recession. On Sunday, Goldman Sachs lowered its forecast for US growth to 2.4% in 2022 and 1.6% in 2023, down from 2.6% and 2.2%, respectively. Federal Reserve officials last week reiterated their intention to deliver 0.50% rate increases at the June and July meetings, which will help limit US dollar gains. At the same time, any US data that is worse than expected could lead to calls for a hike of 0.75%, which would be bullish for the US dollar.

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GBP/USD Technical

  • 1.2199 remains under pressure in support. Below, there is support at 1.2056
  • GBP/USD faces resistance at 1.2272 and 1.2418

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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