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Market Overview
How is the Cable Doing? It Is Wildly Twisted
The British
Pound suffered over the last month when it plunged 7% from 1.3112 below the
1.2200 level. However, the Greenback is responsible for most of this dive. It has
been heavily rising across the market since the Federal Reserve (Fed) began to
tighten its monetary policy and increasing interest rates. Geopolitical, inflationary, and stagflation risks usually draw
investors towards the safe haven U.S. Dollar.
The U.S.
Dollar index (DXY) that measures the currency basket of the Dollar against six
major currencies, rose from 99.8 points to 104.4 points over the last month, or
by 4.6%. This is by 2.6% less than the decline of the Cable. So, it did decline
further after the Bank of England (BoE) forecasted inflation up to 10.2% in
2022 from the current 7%, while GDP is estimated to be down by 0.25% in 2023.
However, recent
data for the Q1 2022 published on May 12 shows that GDP rose by 8.7%, which is
far above 6.6% a quarter before, but lower than 9.0% forecasted by analysts.
Current figures may ease the decision for the BoE to raise interest rates as
there seem to be lower risks of recession, and potentially the monetary
regulator may have to raise rates as
much as the Fed, or even more.
So, the
Pound has the upside potential during the correction. Technically, the strong
support is at the current level of 1.2200, a low since June 2020, when the
Pound quickly bounced back. So, a possible correction to 1.2500-1.2600 may be
considered if the Cable passes the 1.2400 resistance level.
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