According to the latest GfK UK consumer confidence release, ‘soaring food and fuel prices and rising interest rates continue to darken the mood of the nation’. Today’s release – UK consumer confidence for July was unchanged at -41 – means that confidence in the UK remains at a historic low.

In slightly better news, UK retail sales volumes rose by 0.3% in July following a fall of 0.2% in June. According to the Office for National Statistics (ONS), non-store retailing sales volumes rose by 4.8% in July, with feedback suggesting that a range of promotions in July boosted sales. Fuel sales fell by 0.9% and non-food stores sales volumes fell by 0.7%.

The challenge ahead for the Bank of England is getting harder every day. This week’s headline inflation print (10.1% in July vs 9.4% prior) has rubber-stamped a 50 basis point hike at the next BoE monetary policy meeting in September, while current market quotes suggest that the UK central bank may have to hike rates by at least 150 basis points this year, from the current Bank Rate of 1.75%, and by a further 50 basis points in 2023.

The UK gilt market continues to re-price with yields moving higher by the day. The benchmark 10-year UK bond is quoted 8 basis points higher today at 2.40%, a level last seen around eight years ago, while the interest-rate sensitive 2-year gilt is quoted 9 basis points higher at 2.54%, a level last seen in 2008. The inverted nature of the 2s/10s curve points to a recession on the horizon.

The weakness of the British Pound and a reinvigorated US dollar have made cable a one-way trade over the last week. The pair touched 1.2276 on August 10, over three-and-a-half points higher than cable’s current level. A cluster of recent lows down to 1.1860 may slow any further sell-off, but the July 14, two-and-a-half year low at 1.1760 now looks to be the next target.
 

GBP/USD Daily Price Chart

(Click on image to enlarge)

Retail trader data show 77.98% of traders are net-long with the ratio of traders long to short at 3.54 to 1. The number of traders net-long is 10.30% higher than yesterday and 29.40% higher from last week, while the number of traders net-short is 16.25% lower than yesterday and 26.98% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias.

What is your view on the British Pound – bullish or bearish?

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