- GBP/USD is expected to record more losses on downsizing growth prospects in the UK economy.
- The UK economy is facing the headwinds of a severe slippage in the real income of the households.
- Higher US PCE has escalated the odds of a consecutive 75 bps rate hike by the Fed.
The GBP/USD pair has witnessed a sigh of relief after nosediving to near the critical support of 1.2100 as the asset has started balancing around 1.2121. However, this doesn’t warrant a halt in the downside move as more downside is on the cards. The pessimist commentary from Bank of England (BOE) Governor Andrew Bailey on the growth prospects of the UK economy has weakened sterling against the greenback.
As per the commentary from BOE’s Bailey, that “We are being hit by a very large real income shock” signifies that the accelerating inflation rate has squeezed the ‘paychecks’ of the households in the pound area. by higher prices rather than higher quantities as the inflation rate has climbed above 9%.
Meanwhile, the extended recovery in the US dollar index (DXY) has dented the appeal of the risk-perceived currencies. The DXY is balancing above 105.00 and is expected to test its 19-year high at 105.79. The odds of a consecutive 75 basis point (bps) interest rate hike by the Federal Reserve (Fed) have advanced on the higher-than-expected US Personal Consumption Expenditure (PCE). The economic data has improved to 7.1% from the prior print of 7%.
Going forward, investors will focus on the release of the UK Gross Domestic Product (GDP) numbers. As per the market consensus, the UK GDP is seen stable at 8.7% and 0.8% on an annual and quarterly basis respectively. On the dollar front, the release of the US ISM PMI on Friday will be of key importance. A preliminary estimate for the economic data is 55 vs. 56.1 recorded earlier.