GBP/USD is down sharply today and has fallen below the 1.11 level for the first time since 1985. In the European session, GBP/USD is trading at 1.1125, down 1.16%.
The British pound can’t seem to find any love. GBP/USD is looking dreadful, down 2.1% this week and 3.8% in September. The currency hasn’t sunk to such levels since 1985 and the strong US dollar could extend the pound’s current downtrend.
The markets are focused on today’s mini-budget and UK releases. In the mini-budget, Chancellor Kwasi Kwarteng announced tax cuts and more spending. With no funding for the tax cuts and increased borrowing, gilt yields have jumped, but that has failed to boost the pound.
UK posts soft consumer confidence, PMIs
UK releases reiterated that the economy is in trouble, for anyone who needed reminding. GfK Consumer Confidence, which has been in a deep freeze, fell to -49, down from -44 and missing the forecast of -42 points. Manufacturing PMI rose to 48.5, up from 47.3 and above the estimate of 47.5, but remained in contraction territory for a second straight month. Services PMI slowed to 49.2, down from 50.9 and shy of the estimate of 50.0. With both manufacturing and services in decline, the outlook for the UK economy remains grim.
The Bank of England raised rates by 0.50% on Thursday. The pound did post some gains but couldn’t hold on and closed the day almost unchanged. The move brings the cash rate to 2.25%, its highest since 2008. Still, it’s fair to say that the 0.50% underwhelmed the markets, as there were some expectations for a more forceful hike of 0.75%. The BoE has been playing catch-up with inflation, which is running at 9.9% clip. The new Truss government has taken dramatic action to cap energy bills, which should help to curb soaring inflation. With the economy posting two consecutive quarters of negative growth and inflation still not under control, a recession appears unavoidable, which will likely add to the British pound’s misery.
- GBP/USD is testing support at 1.1117. Below, there is support at 1.1038
- There is resistance at 1.1269 and 1.1342