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May 20 - 07:55 AM

GBP/USD - COMMENT-Sterling At The Mercy Of The UK Economy

By Peter Stoneham  —  May 20 - 05:45 AM

Sterling could become a victim of the central banks' battle against inflation as they attempt to fight price pressures and risk sending economies into recession while shaping interest rate differentials.

The U.S. situation is fairly transparent and the market appears comfortable with the Federal Reserve's policy outlook.
It's a different situation in Europe with fragile economies, rising inflation and uncertainty surrounding central bank plans.

The EUR and GBP are losing the battle against the dollar, with 16% and 14% falls respectively since early 2021.
Sterling could be the more vulnerable from hereon in as UK inflation hits 9% in April and consumer confidence falls to a record low in May.
The Bank of England's economic projections suggest aggressive rate hikes will push the UK into recession.

A slowing of the BoE hiking cycle while the ECB starts hiking will favour the EUR as the interest rate margin narrows.

EUR/GBP's recovery from this week's 0.8395 low has potential to record a weekly hammer candle, which could bode well for the EUR next week as the central banks attempt to set a credible policy course.

For more click on FXBUZ









EUR/GBP weekly candle chart: Click here

EUR/GBP daily candle chart: Click here

Source:
Refinitiv IFR Research/Market Commentary

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