Pound sinks as UK cost-of-living crisis casts doubt over BOE rate hikes

GBPUSD H1 24-05

The window is certainly closing for the BOE to hike rates, as the UK economy pretty much grinded to a halt in May according to the PMI data here. Surging inflation pressures are weighing significantly on demand conditions and that is not helping to ease fears of a looming recession in the UK, one that the BOE warned might only hit in 2023.

The pound has dropped from 1.2570 to 1.2485 now against the dollar as markets are scrambling to reprice all of that. UK consumer inflation hit 9% in April and policymakers are warning of double-digit inflation set to follow in the months ahead, yet we’re already seeing the toll it is having on the economy.

Money markets had earlier priced in five more rate hikes by the BOE for this year. That is now down to four rate hikes after the PMI data release above.

The 100-hour moving average at 1.2477 will be a key near-term support level

Support Level

A trading support or support level represents a given price that acts as a temporary barrier for an asset. In particular, this level ensures an asset’s price will not fall below it or will encounter difficulty in doing so. A given asset’s support level is created by buyers that enter the market whenever the asset falls to a lower price. Basic support levels can be calculated and charted by identifying the lowest lows for a time period being considered. This can occur over any period, be it daily, hourly, etc. A support line can be either flat or skewed up or down relative to the overall price trend. Looking deeper, other technical indicators and charting techniques can be used to identify more advanced versions of support.Support levels differ from resistance, which illustrate the opposite direction of price movements.Understanding Support LevelsWhen the price of an asset falls towards a defined support level, the asset can either hold at this level or fall further. In this case, additional supports must be identified to compensate for a breach or decline. Support levels in many assets can be created by limit orders or simply the market action of traders and investors. Traders can rely on support levels to plan either entry and exit points for trades, as well as crafting more detailed trading strategies. For example, if the price action on a chart falls below a support level, it is seen as an opportunity to buy or take a short position. Additionally, if this breach of the support level occurs during uptrend, it may possibly be a sign of a reversal and strength.

A trading support or support level represents a given price that acts as a temporary barrier for an asset. In particular, this level ensures an asset’s price will not fall below it or will encounter difficulty in doing so. A given asset’s support level is created by buyers that enter the market whenever the asset falls to a lower price. Basic support levels can be calculated and charted by identifying the lowest lows for a time period being considered. This can occur over any period, be it daily, hourly, etc. A support line can be either flat or skewed up or down relative to the overall price trend. Looking deeper, other technical indicators and charting techniques can be used to identify more advanced versions of support.Support levels differ from resistance, which illustrate the opposite direction of price movements.Understanding Support LevelsWhen the price of an asset falls towards a defined support level, the asset can either hold at this level or fall further. In this case, additional supports must be identified to compensate for a breach or decline. Support levels in many assets can be created by limit orders or simply the market action of traders and investors. Traders can rely on support levels to plan either entry and exit points for trades, as well as crafting more detailed trading strategies. For example, if the price action on a chart falls below a support level, it is seen as an opportunity to buy or take a short position. Additionally, if this breach of the support level occurs during uptrend, it may possibly be a sign of a reversal and strength.
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to watch for now in cable. A drop below that could open up the path towards 1.2400 as markets try to digest what the BOE may do next in terms of policy steps later this year.

This does serve as a good warning indicator to the ECB though because Europe looks to be going down the same path as well. And when markets see a cause for any repricing, they can be rather violent. For now, that’s not going to help with pound sentiment.

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