GBP/USD Catches a Breath after the 2-Year Lows on Recession Fears & UK Political Turmoil

  • GBPUSD
    (${instrument.percentChange}%)

GBP/USD Analysis

Earlier in the week, we had warned of the increased risk for new lows and how political uncertainty in the UK could further weigh on the pair. Yesterday, Prime Minister Johnson faced another blow, as high profile members of his cabinet resigned [1], [2], which make his political future even more difficult.

If anyone can plow through this, it is definitely Mr Johnson, but his position may have now become untenable. He had recently survived a no-confidence vote, which theoretically means he cannot face another challenge for one year, but the rules can change.

The political turmoil puts pressure on the British Pound, but the main reason for yesterday's slump against the greenback, was renewed fears over a recession, mostly in Europe after some poor PMIs.

This sparked broader risk aversion and another gloomy report by the Bank of England aggravated the sour sentiment. The latest Financial Stability Report found that economic outlook for the UK and the world "has deteriorated materially" and warned that businesses and households will become "more stretched" over coming months. [3]

GBP/USD dropped to the lowest levels since March 2020 and the breakout of the pandemic, which has brought 1.1681 into the spotlight, although bears will likely need fresh impetus for taking it out and setting their sight on 1.1409.

Trade the News: View our Economic Calendar

The pair finds support today and manages to hold 1.1900, which may give it the opportunity to push for 1.2079, but a significant and sustained improvement in sentiment will be required a recovery towards and beyond 1.2186 and the upside contains multiple roadblocks.

The economic calendar has major events ahead, such as the FOMC minutes today and the US NFPs on Friday, which can determine the pair's trajectory.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 06 Jul 2022 https://twitter.com/RishiSunak/status/1544368323625947137

2

Retrieved 06 Jul 2022 https://twitter.com/sajidjavid/status/1544366218789937152

3

Retrieved 04 Oct 2022 https://www.bankofengland.co.uk/financial-stability-report/2022/july-2022

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