While British economic data were disappointing today, GBPUSD regained some of its losses against the USD, but it was thanks to a weaker USD and not strengthening the pound.
Great Britain started a new history last week, with two significant changes. First, they had a new Prime Minister, and the country saw a new monarch in a few days. Ex-foreign minister, Mrs. Liz Truss, was elected as a new PM, and Charles III, after Queen Elizabeth’s death, became the King of the United Kingdom.
After these changes, at the height of these political disturbances, on September 7 British Pound tested 1.1405, which was the lowest level since 1884, and with the weakening US Dollar, the GBPUSD trend started to change. USD was overbought, and the latest downward was probably just a technical correction and benefited the competing currencies.
Pound after missing economic data
On the other hand, it seems now that the climate of political uncertainty has been finished, and now the country at least knows its King and prime minister. Queen Elizabeth was sick, and the situation was uncertain about her health, and ex-Prime Minister Boris Johnson had created many tensions and instabilities in recent months. These changes also brought a measure of stability and propped up the Sterling.
On the economic data front, GDP, Industrial Production, and Manufacturing production all missed the expectations, which cannot be read as a positive signal, which means the current uptrend will need much more reason to be able to continue it is way, especially with Truss’ ambitious plan to prop up energy in the UK and reduce the average cost of energy for households, by funneling billions to the sector, which directly will act against BoE’s hawkish stance and in a bit longer term can cause more problems, especially knowing that at the moment, UK government does not have that much liquidity to inject to the markets.
This is while the scheduled BoE monetary policy meeting, which was supposed to be held on September 15, is now postponed to September 22, a day after the FOMC announcement. BoE, in its August monetary policy meeting, raised its interest rate by 50 basis points, bringing the introductory interest rate up to 1.75%. For next week, Market participants are pricing a rate hike of at least another 50-basis point. We should not forget that the economic condition in the UK cannot tolerate more hawkish policies. However, runaway expected inflation may not leave any other choice for the central bank. Therefore, we can say that recession in the UK cannot be denied, which is a negative sign for both the UK currency and the stock market. After today’s mixed and overall weak data, we must watch the CPI and PPI data on September 14 more closely ahead of next week’s BoE meeting.
From the technical point of view, as shown in the figure below, GBP’s primary resistance sits at 1.22 USD, so any number under this level can cause even new historical lows. On the flip side, breathing above this level, at least in the short term, can change the trend and put the bulls in more demand.