The British pound has taken a nasty tumble today, falling 1.63%. In the North American session, GBP/USD is trading just above the 1.1900 line.
Bailey warns about economic outlook
The US dollar is having its way with all of the major currencies today, with the exception of the Japanese yen. The British pound has crashed below the 1.1900 level for the first time since March 2020. Investors are clearly in a sour mood after Monday’s holiday in the US and are flocking to the safe-haven US dollar and Japanese yen.
The pound didn’t get any help today from BoE Governor Andrew Bailey, who made remarks following the release of the BoE Financial Stability Report. Bailey warned that the economic outlook for the UK and the rest of the world had “deteriorated materially”, mainly due to the war in Ukraine. Bailey said that he expected households and businesses to become “more stretched” and “vulnerable to further shocks” in the coming months. This grim message may be on point but won’t provide any cheer for investors. If anything, it reinforces the belief that the BoE has raised the white flag when it comes to inflation, a disheartening message to be sure.
As well, Norwegian oil workers went on strike today, a move which could result in the termination of gas supplies from Norway to the UK. This has already led to gas prices hitting a 3-month high in the UK, which imports about half of its gas exports from Norway. A potential energy crisis in the UK will raise concerns that the economy could be heading into a recession.
GBP/USD Technical
- There is resistance at 1.2137 and 1.2243
- GBP/USD is testing support at 1.1940. Below, there is support at 1.1870
