GBP/USD Outlook: Pound Suffers amid Rising Inflation, Hawkish Fed

• Catherine Mann favors a tighter monetary policy.
• A balance of payments crisis is looming in the UK.
• Liz Truss is Britain’s new PM.

Today’s GBP/USD outlook is bearish as investors dump the pound amid rising inflation. According to BoE policymaker Catherine Mann, the Bank of England should be ready to raise interest rates quickly to lower the rising inflation.

–Are you interested in learning more about forex signals? Check our detailed guide-

“The gradual pace of increase in Bank Rate has not tempered expectations enough,” she said in a speech to Britain’s Money, Macro & Finance Society at the University of Kent.

“A fast and forceful monetary tightening, potentially followed by a hold or reversal, is superior to the gradualist approach,” she added.

Though worries about a new “sterling crisis” have been unfounded for years, they are more challenging to dismiss now that a fourth British prime minister in six years has taken office.

In a recent interview, Bank of England governor Andrew Bailey vehemently rejected the idea that a UK currency or balance of payments crisis was developing, attributing the pound’s 20% decline against the dollar to global dollar strength.

Interest rates are rising sharply just as government borrowing is expected to surge once again under the leadership of incoming PM Liz Truss. Foreign investors appear to be pulling away from a toxic mix of growing UK inflation and inflation expectations in an impending recession. Beyond brief recoveries, the risk for the pound remains negative, according to HSBC strategist Dominic Bunning.

“The UK may have a new Prime Minister, but the economy and the currency face the same old challenges: weakening growth and high inflation, widening external imbalances and a reliance on foreign financial inflows.”

GBP/USD key events today

GBP/USD investors expect several speeches from policymakers, including governor Bailey, BoE MPC members Mann and Pill and MPC member Tenreyro. All these speeches will contain clues about the next rate hike.

–Are you interested to learn more about day trading brokers? Check our detailed guide-

GBP/USD technical outlook: Downtrend set to continue below 1.14524

Looking at the 4-hour chart, we see the price trading in a range with resistance at 1.16025 and support at 1.14524. There was an attempt to break above the 30-SMA that failed. The price is now trading below the SMA, indicating that bears are still in charge. The RSI also favors bearish momentum as it trades below 50.

If bears can break below support at 1.14524, the price will continue its decline to create a new lower low.

Looking to trade forex now? Invest at eToro!

75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.