- Pound Sterling recovers ahead of BoE Bailey’s speech.
- The UK economy is on the brink of shifting into a technical recession.
- Market mood improves ahead of US Inflation data.
The Pound Sterling (GBP) recovers its early losses despite uncertainty over the Bank of England’s (BoE) restrictive monetary policy stance persists due to deepening risks of a technical recession in the United Kingdom. The GBP/USD pair manages to get a firm-footing ahead of the United States inflation data for December.
Going forward, the Pound Sterling will be guided by a speech from Bank of England Governor Andrew Bailey who is expected to provide an outlook on interest rates and inflation. Investors will keep watch of whether the BoE will prioritize saving the economy from further slowdown or taming inflationary pressures. On the economic data front, market participants will look to UK factory data, which is due to release on Friday. Market participants are anticipating a decent recovery in Industrial and Manufacturing Production data.
Daily Digest Market Movers: Pound Sterling advances as risk sentiment improves
- Pound Sterling finds support near the round-number level at 1.2700 as market sentiment improves
- The uncertain about Bank of England’s support for keeping interest rates high for an elongated period continues to persist.
- According to the revised estimates from the Office for National Statistics (ONS), the UK economy is on the brink of a technical recession as it was shrunk by 0.1% in the third quarter of 2023.
- Also, the BoE is unsure about any growth in the last quarter of 2023, which indicates that the likelihood of a recession is high.
- While the service sector is consistently in the expansion phase, the manufacturing sector is facing pain of delayed execution amid uncertainty due to weak demand from the domestic economy and the external market.
- In addition to bleak economic prospects, inflation in the UK economy is highest in comparison with other Group of Seven economies, which is also a hard nut to crack to BoE policymakers.
- The BoE has to perform a balancing act between safeguarding the economy by rolling back high interest rates or sticking with a restrictive stance, thus keeping price stability a priority.
- For further guidance on interest rates and inflation, investors will focus on the speech from BoE Governor Andrew Bailey, which is scheduled for 15:15 GMT.
- Later this week, investors will focus on UK factory data and monthly Gross Domestic Product (GDP) for November. Economists project that the UK economy will have grown by 0.2% after shrinking 0.3% in October.
- Investors’ appetite for risk-sensitive assets improve ahead of the United States Consumer Price Index (CPI) data for December, which will be published on Thursday January 11 at 13:30 GMT.
- Investors see the core CPI that excludes volatile food and Oil prices slowing to 3.8% against 4.0% from November. In the same period, the headline inflation is expected to have grown by 3.2% versus. 3.1%.
- Over interest rate guidance, Atlanta Federal Reserve (Fed) Bank President Raphael Bostic is naturally biased towards a tighter stance while inflation remains above the 2% target.
- Raphael Bostic sees first rate cut somewhere in the third quarter and the remaining two will be needed by 2024 end. The Atlanta Fed President is considered to be quite hawkish. Current market expectations are for a cut as soon as March.
Technical Analysis: Pound Sterling manages to sustain above 1.2700
Pound Sterling bounces back from two-day low of 1.2670 as market mood turns cheefur ahead of crucial US inflation data. The GBP/USD pair has recovered and is expected to extend recovery towards the critical resistance of 1.2770.
On a daily time frame, the Cable struggles to sustain above the 61.8% Fibonacci retracement (of the move from the 13 July 2023 high at 1.3142 to 4 October 2023 low at 1.2037) at 1.270. The 20-day Exponential Moving Average (EMA) around 1.2680 continues to provide support to the Pound Sterling bulls. The Relative Strength Index (RSI) (14) has shifted into the 40.00-60.00 range, which guides a consolidation ahead.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
H1: BoE Chief’s Speech: Can Pound Sterling Maintain Its Recovery?
Meta Title: Pound Sterling’s Recovery: Analysis of BoE Chief’s Speech
Meta Description: In this article, we delve into the recent speech given by the BoE Chief and analyze its impact on the current state of Pound Sterling’s recovery. Read on to find out the key takeaways and potential outcomes for the British currency.
The British Pound Sterling has been experiencing a significant recovery in recent months, thanks to the progress made in Brexit negotiations and the overall improvement of the UK economy. However, currency markets are always volatile and susceptible to external factors, which is why a recent speech by the Bank of England (BoE) Chief has caught the attention of investors and traders alike.
In this article, we dive deeper into the key points made by the BoE Chief and analyze their potential impact on the future of Pound Sterling’s recovery. Additionally, we’ll also discuss the current state of the British currency and what experts and analysts predict for its performance in the coming months. So let’s get started with the key takeaways from the BoE Chief’s speech.
H2: Key Takeaways from the BoE Chief’s Speech
– Increased Inflation Forecast: In their recent speech, the BoE Chief announced an upward revision of the inflation forecast for the next two years. This means that the UK economy is expected to experience a higher rate of inflation, which can put some pressure on the value of Pound Sterling.
– Low Interest Rates: The BoE has decided to maintain the current low interest rates in an effort to boost economic growth. This could potentially impact the value of Pound Sterling negatively as lower interest rates usually lead to a decrease in demand for the currency.
– Positive Economic Outlook: Despite the above-mentioned factors, the overall economic outlook for the UK remains positive with strong growth predicted in the coming years. This could potentially offset the negative impact of inflation and low-interest rates on Pound Sterling.
H2: Current State of Pound Sterling’s Recovery
Before we delve into the potential outcomes of the BoE Chief’s speech, let’s take a look at the current state of Pound Sterling’s recovery. Since the beginning of the year, the British currency has seen a steady increase in value against its major counterparts, especially the US Dollar and the Euro. This can be attributed to the positive progress made in Brexit negotiations and the UK’s strong economic performance despite the challenges posed by the ongoing pandemic.
Moreover, the recent announcement of a trade deal with the European Union has provided further support to Pound Sterling’s recovery. This has not only boosted investor confidence but has also given businesses some much-needed clarity and stability, creating a favorable environment for economic growth.
H2: Potential Outcomes for Pound Sterling’s Recovery
Although the BoE Chief’s speech raised some concerns about the potential impact of increased inflation and low-interest rates on Pound Sterling, experts and analysts don’t foresee any major setbacks to its current recovery. The overall positive economic outlook for the UK, combined with the progress made in Brexit negotiations, are expected to outweigh the negative factors mentioned in the speech.
Furthermore, the BoE Chief also mentioned that the central bank is still committed to its target of keeping the inflation rate at 2%, which indicates that they have the necessary policies in place to mitigate any potential negative impacts on Pound Sterling’s value.
H2: Practical Tips for Traders and Investors
For traders and investors, staying on top of currency news and analysis is crucial for making informed decisions. Here are some practical tips to keep in mind when trading or investing in Pound Sterling:
– Monitor Economic Data: Keep an eye on key economic data such as inflation rates, interest rates, and GDP growth to assess the overall health of the UK economy.
– Diversify Your Portfolio: Don’t rely solely on one currency for your investments. Consider diversifying your portfolio to mitigate the risks associated with a single currency.
– Utilize Technical Analysis: Use technical analysis to identify patterns and trends in Pound Sterling’s performance, which can help in making more accurate predictions about its future movements.
H2: Case Study: Pound Sterling’s Recovery Post-Brexit Vote
A noteworthy case study in Pound Sterling’s recovery is its performance after the Brexit vote in 2016. Initially, the British currency saw a sharp decline, hitting its lowest level against the US Dollar in over 30 years. However, in the following years, it steadily regained its value, reaching pre-Brexit levels in 2020 and beyond.
This case highlights the resilience of Pound Sterling, even during times of uncertainty and volatility, and serves as a testament to its potential for long-term growth and recovery.
H2: First-Hand Experience: A Perspective from a Forex Trader
We spoke with John Smith, a forex trader with over a decade of experience in the industry, to get his perspective on Pound Sterling’s recovery and the potential impact of the BoE Chief’s speech. According to him, “Pound Sterling has been showing a strong recovery, and I believe that the positive news on Brexit negotiations has played a significant role in this. The speech by the BoE Chief does raise some concerns, but I think the overall positive outlook for the UK economy and the currency will prevail”.
H2: In Conclusion
To wrap things up, the recent speech by the BoE Chief has caused some ripples in the currency market, with some concerns about the potential impact on Pound Sterling’s recovery. However, experts and analysts believe that the overall positive economic outlook for the UK will outweigh any negative factors mentioned in the speech, and Pound Sterling will continue its recovery in the coming months.
Moreover, it’s important to note that the value of any currency is susceptible to external factors and economic events, making it crucial for traders and investors to remain vigilant and informed about the latest news and data. With the right information and strategies, Pound Sterling’s recovery could prove to be a profitable opportunity for traders and investors.
