The political division in Britain increased, and the Brexit parties’ skirmishes appeared, along with the economic suffering from the consequences of the Russian-Ukrainian war. There is also a continuing pessimistic view of the Bank of England and expectations of recession, in addition to the continuation of the US Federal Reserve’s direction for more interest rate hikes. All combined factors contributed to the continuation of the sharp downward trend for the pound gainst the dollar, GBP/USD, with recent losses pushed it towards the 1.1875 support level, the lowest for the currency pair since March 2020.
The pound continued to collapse, as speculation spread about the future of British Prime Minister Boris Johnson amid a wave of moving away from top positions in the government and the party's confidence in his leadership waning. Sterling began to tumble in the wake of news of the dismissal of Prime Minister Michael Gove. However, it is still above the day's lows, after earlier in the session dropping to as low as $1.1876, a level last seen amid the pandemic turmoil in early 2020.
Gove, a senior member of the party who has been in charge of the housing portfolio, had earlier called on Johnson to resign and would be the latest high-profile figure to leave the government. The move follows the departure of Chief Financial Officer Rishi Sunak, Health Minister Sajid Javid and a host of other cabinet members. The recent political turmoil is putting pressure on the pound, which has been hurt by fears that higher interest rates in the UK will continue to delay monetary tightening in the US and other countries, as Britain faces greater economic risks in the coming months.
Overall, the British pound has fallen 12% against the US dollar so far this year 2022 due to this mix of local and global issues, and an increasing number of market participants see the potential for the British currency to fall towards the $1.10 level, a level last seen in 1985. Sterling was not much pleased with the rebound gains as gas prices in the UK and Europe rebounded somewhat on news of a major strike in Norwegian gas fields that will now be averted, although supplies from Russia remain restricted. The strikes, which threatened to cut off most gas imports from the UK and Europe from Norway, were called off with the Norwegian Ministry of Labor confirming that it had intervened to end the industrial strike scheduled for later this week.
This is an important development for the pound and the euro, which have fallen sharply against the dollar over the past two days amid rising European gas prices, which threatened rising inflation and slowing economic activity. These price increases have been linked to news of Norwegian strikes that could have threatened up to 60% of the country's imports as Russia continues to squeeze supplies.
In general, the Sterling Pound, Euro and other European currencies came under massive selling pressure during the first part of this week's trading and it seems that it will remain subject to further losses against the Dollar as the energy crisis in Europe worsens. "Fears of a gas crisis cast a shadow over everything," says Ulrich Leuchtmann, head of FX and commodities research at Commerzbank. The gas supply crisis will be a Europe-specific problem.
And in the context of a "European problem", the UK was included in light of the interdependence between the gas market and Europe. This, in turn, is reflected in the drop in the Pound Sterling along with the Euro against the Dollar as concerns about European energy security escalated into a series of headlines that included pressure on Russian gas supplies.
GBP/USD Forecast
In the above list, the factors of continued weakness of the GBP/USD currency pair become clear, which means that the general trend is still bearish and that the currency pair is subject to testing new record support levels, and investors will not care about the arrival of technical indicators towards oversold levels as much as following the factors of sterling weakness. Accordingly, the support levels 1.1865, 1.1770 and 1.1690 may be legitimate targets for the current bears' control.
On the other hand, the first break of the trend still needs to move towards the resistance level 1.2445 as a first stage on the daily chart. The sterling dollar pair will be affected today by:
- Developments in Britain
- The reaction to the announcement of the number of US jobless claims
- Statements of a number of US monetary policy officials.
