Red-Hot Inflation Rekindles Stagflation Fears


GBP Key Points:

  • Outlook: Bearish
  • UK Inflation Hit Double Digits. BoEExpects Inflation to Top Out at 13.3% in October.
  • UK Consumer Confidence Remains at All-Time Low.
  • Markets Price in a Further 154bp Hike from the Bank of England in 2022.

How to Combine Fundamental and Technical Analysis

GBP Week in Review

The GBPdidn’t get pleasure from its best week, dropping floor towards the Euro and US Dollar respectively. GBPUSD declined from a weekly excessive of 1.2150 to trade at 1.18300, a drop of 300 odd pips and extra crucially buying and selling beneath the key psychological 1.20 degree. The losses got here on the again of a continued rise in UK inflation, which places the UK forward of itsWestern European counterparts. Issues together with Sterling weak spot, Brexit-related provide chain points, and hovering vitality costs all contributed, with meals costs rising 11.6% in 4 weeks. The price of residing disaster has begun affecting the debt of grocery store’s bonds with these issued by Asda, Iceland Foods, Tesco Plc and groceries supply agency Ocado Group Plc falling on the again of Wednesday’s CPI print. They had been hit by issues of rising meals costs which made the most important contribution to the month’s CPI improve.Going into the winter, Britons face hovering payments to warmth their houses on high of mealsvalue rises, which in flip means borrowing prices for supermarkets are unlikely to enhance anytime quickly.

The Bank of England (BoE) has seen the stress ramp up following this previous week’s information releases. The BoE should hike greater than another G10 nation as buyers have priced in 154 foundation factors of additional hikes in 2022, greater than is requested of the present pacesetter the US Federal Reserve. It implies three additional 50 foundation level hikes are required on the three remaining conferences in September, November and December. Given the 50 foundation level hike in August, there may be now a precedent and ‘The Old Lady of Threadneedle Street’ (BoE) may ship.

Market Rate HikeExpectations for the Major Central Banks

Source: Goldman Sachs

Should the GBP meet the speed hike goal the currency ought to stay supported, whereas one other ‘dovish’ pivot from the BoE that disappoints towards expectations may ship it decrease. To finish the week, we had each GfK UK client confidence and retail gross sales out on Friday. UK client confidence for July was unchanged at -41 implying that confidence within the UK economic system stays at a historic low. The GfK mentioned: “crisis of confidence will only worsen with the darkening days of autumn and the colder months of winter.” The solely excellent news in what was a dour week for the GBP, retail gross sales surprisingly rose 0.3% in the month of July, however this nonetheless represented an annual drop of three.4%.

UK Economic Calendar for the Week Ahead

As we strategy the tip of August, the UK financial calendar is set to get pleasure from a subdued week. Over the course of the week, there is just one ‘high’ rated information launch, while we even have one ‘medium’ rated information launch.

Here is the only real excessive rated occasion for the week forward on the Eurozone financial calendar:

  • On Tuesday, August 23,now we have S&P Global/CIPS Manufacturing PMI Flash due at 08h30 GMT.

For all market-moving financial releases and occasions, see the DailyFX Calendar

GBPUSD Chart, August 19, 2022

British Pound (GBP) Weekly Forecast: Red-Hot Inflation Rekindles Stagflation Fears

Source: Buying and sellingView, Prepared by Zain Vawda

GBPUSD Outlook and Final Thoughts

The GBP has been influenced by a broader danger urge for food this yr. The August price hike got here with a dire set of financial forecasts, compounded by the UK CPI print. This has heaped additional stress on stretched customers who at the moment are liable to strike for higher pay. Strike motion witnessed earlier in the summertime was partially reignited this week and going ahead may weigh on financial exercise, with unions warning of ‘indefinite’ strike motion. The GBP stays in a precarious place as evidenced by this week’s information with a rise in CPI and price hike expectations coinciding with a weaker GBP (normally a rise in price hike expectations ought to have strengthened the GBP). There is a robust risk that any important strikes on the pair shall be facilitated by US information in addition to the Jackson Hole Symposium, which guarantees to be the focus for the week forward.

This week’s 300-odd pip decline has seen the pair again beneath the psychological 1.2000 Key degree with the 20 and 50-SMA offering resistance. As we start the week, the psychological key degree, in addition to the 2022 low at 1.1760, will maintain the important thing to persevering with draw back momentum with long-term targets resting across the 1.14300 space.

– Written by Zain Vawda for

Contact and comply with Zain on Twitter: @zvawda

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