With the return of the US dollar from the Independence Day holiday, it completed the path of its sharp gains against the rest of the other major currencies, amid strong expectations of more US interest rate hikes throughout 2022. The share of the GBP/USD currency pair fell to the 1.1898 support level, the lowest for the currency pair since March 2020 and settled around the 1.1925 level, and there is no powder for an improvement in the currency pair's performance so far. The dollar is awaiting the minutes of the last meeting of the Federal Reserve and the numbers of US jobs.
Sterling will continue to lose more value against the US dollar than current levels say forex analysts at JP Morgan. A new currency strategy note from the Bank of Wall Street found that “a strong US dollar is not declining” and therefore they maintain a “bearish” position for GBP/USD; Strategic selling position. To justify expectations of a weaker pound against the dollar, JPMorgan said Britain's inflation remains the highest in the G10 while economic growth through 2023 will lag behind most of its peers.
“The domestic cyclical outlook will continue to dampen the outlook for sterling, even with the fiscal consolidation,” says Paul Megizzi, currency analyst at JPMorgan. And “In the meantime, it seems unlikely that the Bank of England will stem the downward pressure on sterling on its own.” UK inflation is not expected to peak until October, economists say, citing the timing of the upcoming energy cap hike from Ofgem.
JP Morgan expects UK CPI inflation to approach 11% y/y at this point, underlining that the cyclical outlook for the UK economy remains bleak - in fact, the project is the second lowest in the G10 based on cumulative growth. over the next six quarters to 2023.” “So, while the Bank of England has signaled its willingness to speed up rate hikes – perhaps in August by 50 basis points – it appears that the swaps that had up to this point called for a more gradual pace of hikes will continue, and as long as that is the case sterling should continue to hold Trade deprived of nominal politics".
As for the US dollar outlook, the multi-month uptrend is far from over, says JP Morgan. “We have recommended a defensive and long-term stance on currencies throughout the year, given the combination of weak growth, high inflation and tight monetary policy,” says Mira Chandan, global FX analyst at JP Morgan in London. It also says: "Developments in the past month - even more hawkish central banks including the Federal Reserve, declining PMI and consumer confidence, and higher energy prices in Europe - all reinforce this position."
As such, JP Morgan forecasts the GBP/USD exchange rate at 1.15 by the end of the year and 1.16 by the end of March 2023. For those looking to lock in current rates, Horizon Currency foreign exchange specialists say they are currently offering spot rates between 40 and 50 pips. away from the market. Deep in July, the Pound started in the red against the Dollar, falling back below 1.20 amid a significant drop in UK government bond yields. This drop is a sign that the market is lowering its expectations of future interest rate hikes by the Bank of England.
GBP/USD analysis
So far, the general trend of the GBP/USD currency pair is still bearish, taking into account that the currency pair's move below the 1.2000 support level moves technical indicators towards strong oversold levels, so currency traders may consider catching long positions if factors stop the gains of the US dollar. This may happen if the US job numbers come in less than expectations, or the tone of the minutes of the last meeting of the US Federal Reserve comes less hawkish than the market expectations.
The closest support levels for GBP/USD today are: 1.1880, 1.1800 and 1.1710, respectively.
The closest resistance levels for GBP/USD today are: 1.2000, 1.2085 and 1.2235, respectively.
