Pound Sterling (GBP/USD) News and Analysis
- UK Fiscal proposals to be submitted to the OBR this morning – tax hikes and spending cuts are reported to be detailed therein
- GBP/USD rising on dollar weakness ahead of UK GDP and US CPI data
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Fiscal Policy to be Sent to OBR & UK GDP Figures Poised for Disappointment
The UK economy continues to show signs of distress as inflation breached the 10% mark and remains elevated. With inflation showing no clear signs of a trend reversal, the Bank of England (BoE) decided to hike interest rates by a massive 75 basis points, adding further pressure to the cost-of-living crisis.
UK CPI vs UK Policy Rate
Source: TradingView, prepared by Richard Snow
To make matters worse, the new Chancellor of the Exchequer Jeremy Hunt is expected to hand over the key points of the autumn statement to the Office for Budget Responsibility (OBR) this morning, where spending cuts of around £35bn and tax hikes totaling £25bn are suggested to be proposed.
UK GDP on Wednesday is forecast to have contracted by around 0.5% in Q3 compared to Q2, something that the BoE had warned about in prior rate setting meetings as it flagged the risk of a conformed recession at the end of Q4.
Pound Sterling (GBP/USD) Technical Analysis
The pound has appreciated against the dollar, as have other major currencies against the dollar. The 1.1110 level provided a floor ahead of the NFP print where price action reversed higher at an impressive rate. Better than expected GDP data could add to the near-term bullish momentum but the greatest contributor to the recent price action remains US dollar weakness. Bulls will be eying the 2016 low of 1.1685 should we close above the 2020 low of 1.1410.
Given the significant lack of GBP drivers, apart from remaining at historically low levels, the outlook for the pair appears bearish. The Fed remains on course to raise interest rates to that 5% mark as inflation remains stubborn. Therefore, shorter-term bull rallies in GBP/USD are likely to create a lot of interest from bears, as the longer-term trend remains well intact. A move above 1.2000 ought to be achieved before conversations of a longer-term reversal can be considered.
GBP/USD Daily Chart
Source: TradingView, prepared by Richard Snow
| Change in | Longs | Shorts | OI |
| Daily | 0% | 22% | 9% |
| Weekly | 1% | -8% | -3% |
GBP/USD: Retail trader data shows 61.20% of traders are net-long with the ratio of traders long to short at 1.58 to 1.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.
The number of traders net-long is 7.00% higher than yesterday and 14.99% higher from last week, while the number of traders net-short is 2.92% higher than yesterday and 23.69% lower from last week.
Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading outlook.
Major Risks Events for the Week Ahead
US politics takes center stage this week which is likely to see volatility continue in the wake of last week’s mixed NFP print. Pound focused data is due on Wednesday with the preliminary GDP print.
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— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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