- The pound is falling on political uncertainty as Britain chooses its next prime minister.
- The pair might consolidate until a new PM is chosen.
- BOE might raise rates by 50bps in August.
Today’s GBP/USD price is bearish after Boris Johnson’s resignation and uncertainty over the next administration. A leadership contest has started in Britain to determine the next prime minister, and most traders would rather wait on the sidelines.
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The next prime minister will have the difficult task of keeping the UK from going into recession while simultaneously bringing the cost of living down.
“Although pound investors will be hoping for a government less distracted by scandal and more focused on providing coherence around the post-Brexit economy, the jury is still out,” Rabobank strategists said.
“The pound may suffer a lack of fresh direction until the new Prime Minister is in place.”
Bank of England Governor Bailey expects the UK’s inflation to return to the bank’s 2% target in two years. He expects inflation to drop sharply next year, as forecasted by the bank in May.
“I always go into forecasts with an open mind, and that’s critical, but I think the fundamentals of that profile remain in place today,” Bailey told lawmakers.
The bank has forecast inflation peaking at 11% in October this year. He also said the Ukraine war and domestic cost pressures could worsen inflation.
The markets believe there is a 70% chance of a 50bps rate hike from the Bank of England at the August meeting.
GBP/USD key events today
There will be a speech from Bank of England Monetary Policy Committee member Sir Jon Cunliffe. His speeches are known to have indications of the future direction of monetary policy.
Investors expect to hear from the Bank of England governor, Mark Bailey, later today.
GBP/USD price: Bears making lower lows
Looking at the 4-hour chart, we see the price in a bearish move. It is trading well below the 30-SMA, showing bears have control, and RSI favors bearish momentum as it is trading below 50. The price fell below a critical support level at 1.18937. This level acted as support on July 6, causing a retracement.
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If the bearish momentum stays strong, we might see the price fall further with the next hurdle at the 1.18000 psychological level. This trend will remain bearish if the price trades below the 30-SMA and the RSI stays below 50.
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Saqib Iqbal
