A1 Trading Company

August 4, 2022

The Pound Grows Weaker After Rate Hike

Frank Cabibi

The UK hiked interest another 50 basis points this morning. Rates are now at 1.75% and inflation is still projected to be much higher next quarter. Here is our outlook on the pound and where we think it will be going in the future.

Our Outlook on the Pound

pound
GBP GDP

As output decreases and inflation sits at highs from the 80s, forecasts are now expecting that the economy will enter a recession this year. Growth has not been very impressive in 2022 as contractions continue to fuel bearish sentiment in the UK..

It also looks like the pound is struggling with these aggressive hikes, similarly to the euro. BoE is still dedicated towards the inflation curb, but the economy may suffer as a result.

Analysts also expect inflation to finally reach its peak in October of this year at 13.3%. This will take years to eventually come down to reach its 2% target.

Pound Pair Setups

GBP/USD

pound

GU bounces off support on the 1D timeframe again and is coming up to the break even level. The recent break above a falling long term trend line is a bullish sign for the pair for a potential momentum shift. Resistance sits at 1.23110. If price breaks under current support, we could see the pair move lower towards 1.19400s.

GBP/JPY

pound

GBPJPY falls lower on the 1D after the BoE's rate hike decision. Price got rejected from the highs as it retraced from resistance. The pair might try to move lower to test 159.500 if the downside continues. After the recent break under a supportive trend line, we could see a shift towards a downtrend as pound weakness continues.

GBP/AUD

pound

GBPAUD has been channeling sideways since April which is a promising setup on these supply and demand zones on the 1D timeframe. After each test on the low, the pair eventually makes its way back up to the 1.77000s. So, this pair looks to be a good channel trend play.

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