GBP Maintains Bleak Outlook – Comments From BoE Governor Bailey

The ECB’s version of the Fed’s Jackson Hole Economic Symposium took place last week, seeing a number of influential central bankers making an appearance. Jerome Powell stole the show as far as markets were concerned as he opened the door to rate hikes into 2023, maintaining lofty rate hike expectations and stoking demand for USD.

As far as the Bank of England (BoE) is concerned, Governor Andrew Bailey reiterated concerns around the slowdown in growth alongside an anticipated rise in inflation ahead. Bailey warned that the Bank would act more forcefully in the event inflation persists. The depreciation of the pound worsens the current cost of living squeeze in the UK for imported goods.
 

GBP/USD Technical Levels Considered

GBP/USD approached and respected the significant 1.2000 level, once more – which remains a major level to monitor over the medium term. Support levels beyond 1.2000 appear at 1.1685 which is 2016 low and the 2020 low of 1.1410.

Drivers of sterling appreciation are few and far between which means any upside movement in GBP/USD is likely to emanate from a retracement in USD. Such a scenario could play out this week as we trade into Q3 after any H1 and Q2 rebalancing – which tends to see dollar appreciation. Resistance appears at 1.2250 and 1.2400.

GBP/USD Daily Chart

(Click on image to enlarge)

Source: TradingView, prepared by Richard Snow

The weekly chart highlights the importance of the 1.2000 level, which has only seen two previous significant breaks – one in 2016 during the flash crash and the other in 2020 as the coronavirus spread. It would seem, therefore, that a sustained move below 1.2000 would require some sort of catalyst, which is why the threat of a potential recession should not be taken lightly.

In the absence of a catalyst, GBP/USD appears to have set a floor around 1.2000. Selling rallies still appears to be a constructive outlook.

GBP/USD Weekly Chart

(Click on image to enlarge)

Source: TradingView, prepared by Richard Snow
 

Major Risk Events For The Week Ahead

The majority of high-importance scheduled risk events to emanate from the US with the FOMC minutes, services PMI and NFP the main data due for release. A negative surprise in jobs data could see a momentary reprieve in GBP/USD but such a print remains to be seen.

In addition, there are a whole host of central bank speakers this week to keep an eye on:

• July 5th Gov Bailey, Tenreyro
• July 6th Boe Pill, Cunliffe
• July 7th BoE Mann

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