The price of the pound sterling overcame the decline against the euro, the US dollar, and other currencies before the holidays, but it may be volatile and may decline further with the end of the year. This witnessed more divisions and conflicts between countries and peoples with questions raised about the spirit of money itself. By performance, the overvalued GBP/EUR exchange rate has declined and what could be a decent rate for the US dollar on Friday, but the resulting low activity and volatility could see it push lower against both currencies by the end of the year. The GBP/USD exchange rate losses reached the support level of 1.1992, and closed the week's trading stable around the level of 1.2050, in light of the bears' continued control.
Commenting on the performance of the currency market. “GBP/USD and EUR/GBP are sitting right on top of their major levels,” says Brad Picktel, Jefferies forex analyst. Both are fundamental, and we are pegged on top of both as the market remains reluctant to challenge these levels ahead of the holidays."
Although there will be public holidays in many parts of the world on Monday, there is likely to be some choppy trading until January when northern hemisphere markets reopen with the focus likely on central banks which are nowhere near doing enough to bring down inflation. . “FX fundamentals are completely opposite to the euro, with the ECB trying to take the maximum hawkish stance as it recognizes the risk that the fiscal impulse could keep inflationary pressures high from here,” says John Hardy, FX Analyst at Saxo Bank.
Notably, whether market expectations for the bank rate are high enough depends at least in part on whether the Bank of England was correct in its prediction in November that UK inflation would fall rapidly from double-digit percentages next year. The Bank of England has warned that the risks to its outlook are to the upside, but the implications for sterling in the above scenario are more uncertain than usual given the circulating suggestions and some indications of both foreign and domestic investors recently questioning the credibility of the UK government and country.
Oil-producing countries might say that there is no coincidence between the pandemic period, quantitative easing, rising commodity prices and current levels of inflation, though they might choose to call this “inflation” a form of monetary decadence instead. Whether or not they do the latter will likely depend on how good the BoE's inflation outlook is and what it does with the bank rate next.
Meanwhile, it may not be a coincidence that when trading between roughly 1.20 and 1.2450 in recent weeks, the pound has been alternating between a loss of -12.5% for 2022 and a loss of -8.4%, which is a close reflection of reported inflation rates minus the bank rate is 3.5%. This could be something like the short-term "fair value" of sterling against the dollar, although the same practice applied to the euro would suggest that the pound-to-euro rate should be trading somewhere between 1.1794 and 1.1894.
Technical outlook for the GBP/USD pair:
- It appears that the GBP/USD is trading within a bearish channel formation.
- This indicates significant short-term bearish momentum in market sentiment.
- Therefore, the bears will be looking to extend the current declines towards 1.2021 or lower to 1.2007.
- On the other hand, the bulls - will target potential recovery profits at around 1.2059 or higher at 1.2075.
On the long run, and according to the performance on the daily chart, it appears that the GBP/USD currency pair is trading within a sharp descending channel formation. This indicates a strong long-term bearish momentum in market sentiment. Therefore, the bears will target long-term profits at around 1.1939 or lower at 1.1828. On the other hand, the bulls will look to take profits around 1.2139 or higher at the 1.2252 resistance.
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