Pound yawns after Bailey warnings

The British pound is trading quietly on Monday, as the currency markets have started the week with a whimper.

BoE’s Bailey says dark times ahead

BoE Governor Bailey testified before lawmakers earlier today, and his message was a grim one. The BoE has predicted that soaring inflation could top 10%, and Bailey today admitted that “this is a bad situation to be in”.  Bailey said that the Ukraine war could cause a further energy shock and that his concern about the surge in food prices was “apocalyptic”.

Bailey gets full credit for not sugar-coating what is a difficult economic situation, but his candidness will not help support the struggling pound, which hasn’t posted a winning week since mid-April. I appreciate Bailey’s honesty, but the BoE has run into a credibility problem with its rate policy in recent months, and it’s questionable whether his message that dark times lie ahead is the way to restore confidence in the central bank.

The economic picture in the US is brighter, but the Fed’s aggressive policy will lead to a slowdown in growth. The big question is can Fed Chair Powell guide the economy to a soft landing and avoid a recession. On Sunday, Goldman Sachs lowered its forecast for US growth to 2.4% in 2022 and 1.6% in 2023, down from 2.6% and 2.2%, respectively. Federal Reserve officials last week reiterated their intention to deliver 0.50% rate increases at the June and July meetings, which will help limit US dollar gains. At the same time, any US data that is worse than expected could lead to calls for a hike of 0.75%, which would be bullish for the US dollar.

.

GBP/USD Technical

• 1.2199 remains under pressure in support. Below, there is support at 1.2056
• GBP/USD faces resistance at 1.2272 and 1.2418

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.