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Sep 28 - 11:55 AM

GBP/USD - COMMENT-Sterling May Have Nearly A 3% Fall Still In Store, BOE Some Angst

By Randolph Donney  —  Sep 28 - 10:14 AM

GBP/USD suffered its biggest percentage drop in a year by early U.S. trade on Tuesday, falling beneath July, August and September key lows at 1.35725-609, and could slide another 2.8% medium-term as doubts grow about the utility of BoE rate hikes expected next year amid an energy crunch and economic bottlenecks.

Global risk-off flows weighed on cable, pushing it near oversold levels on daily studies, but it still appeared headed down toward its weekly cloud base and 38.2% Fibo of the 1.1413-1.4250 pandemic recovery at 1.31575/66.

The dollar has gained broadly since last week's Fed taper signal, but the pound's rally after a much more hawkish BoE unraveled.

BoE Governor Andrew Bailey on Monday reaffirmed the tightening bias but also said monetary policy shouldn't respond to supply shocks that don't affect inflation expectations.

This might apply to the shortage of truck drivers leaving many British gas stations empty nL1N2QU0AL and broader pandemic and Brexit-driven bottlenecks remain to be seen nL8N2QQ4NC.

Thus, BoE rate hikes might do little to lower inflation, while raising the UK's hefty debt-servicing costs, making the pound less attractive given the UK's, budget, current account and trade deficits.

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Source:
Refinitiv IFR Research/Market Commentary

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