GBP/USD: Pound drops as eurozone stagflation risks could threaten UK economy

  • Markets leaning towards possibly one last BOE rate hike (implied rate peak of 5.527% at Feb 1st 2024 meeting)
  • UK house prices tumble to lowest levels since 2009
  • Doji pattern possibly invalidated as bearish momentum remains

The British pound is declining as expectations grow that for the BOE to deliver one last hike as the consumer is quickly weakening.  Stagflation risks are here as housing market concerns worsen and are now accompanied with a cautious consumer who is battling rising inflation expectations. Any lessons learned from the ECB could be that the BOE will have a much worse growth outlook.

The latest update from retailer, John Lewis and Waitrose signaled a tough environment as the consumer struggles with inflation and becomes cautious with big-ticket goods.  John Lewis was expected to deliver a major overhaul, but a 4% drop with online sales means they won’t be turning profitable anytime soon.  If they have to wait till 2028 to turn a profit, investors might become more skeptical about the UK consumer spending trends.

Housing Woes

A key UK house price index fell to a 14-year low reinforced the belief that the property slump will not be improving anytime soon given how high mortgage rates have risen and over a deteriorating outlook. Both Halifax and Nationwide are highlighting falling house prices and that trend will likely continue.

GBP/USD Daily Chart

The GBP/USD (daily chart) as of Thursday (September 14th 2023) has made a significant breakdown below multiple support levels, indicating a potential acceleration for the pair.  Price action has fallen below the 200-day SMA and could target the June low at around the 1.2310 level.  Given the recent string of upbeat US economic data points, king dollar might have one major rally before exhaustion settles in.

To the upside, the downward sloping trendline that started in the middle of July provides major resistance. If price is able to close above the 1.2550, further upside could be targeted if Wall Street is convinced that the Fed has a peak in place for rates.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya