The British pound has started the week in negative territory after posting a losing week. GBP/USD is trading at 1.1374, down 0.31% on the day. The pound closed below the 1.14 level on Friday, which hasn’t occurred since 1985.
UK at standstill for Queen Elizabeth’s funeral
Today is a bank holiday in the UK, as the country is at a standstill for the funeral of Queen Elizabeth II. There are no economic releases out of the UK and just one minor event in the US, but the pound has extended its losses and is still trying to find its footing. The pound has been pummelled by weak UK data and a strong US dollar which has been boosted by an aggressive Federal Reserve. The pound has fallen more than 15% against the dollar and with the UK possibly already in recession, the pound’s downswing could well continue.
The cost-of-living crisis has hammered UK consumers who are in a sour mood and are cutting on disposable spending. Retail sales in August plunged by 5.4% YoY, following a July reading of -3.1%. A YouGov survey found that consumer confidence fell into negative territory in August for the first time since the Covid lockdown in mid-2020.
The Bank of England meets on Thursday after the meeting was delayed by a week to the 10-period of national mourning. This could make for a most interesting week, with the Fed meeting one day earlier. Both central banks are expected to raise rates by 0.75%, and any surprises would likely trigger a strong reaction in the markets. The BoE has been widely criticized for failing to get a handle on inflation, which is running at a 9.9% click. Inflation is yet to peak, and if the BoE hikes by 0.75%, it will not only help slow inflation, but will restore credibility in the BoE, which is critical in the fight against inflation.
GBP/USD Technical
- GBP/USD faces resistance at 1.1504 and 1.1656
- There is support at 1.1384 and 1.1269