- The British pound is almost flat during the day, although slightly positive after a quiet day.
- Weaker economic data from the UK, high inflation and slower growth paint a stagflation picture for the pound.
- On Tuesday, the UK S&P Global/CIPS Composite and Services PMIs will provide additional information on the UK economy.
During the American session, the GBP is subdued, holding on to 1.2100 after pulling back from daily highs around 1.2165 in a quiet session. At the time of writing this article, the pair GBP/USD it trades around 1.2104.
Last week’s dismal UK economic data and weaker economic outlook a GBP/USD headwind
European stocks ended the session mixed, while in the currency complex, haven pairs fell. The exception to the rule is the USD, which is gaining against the pound. Considering that UK Gfk Consumer Confidence fell to its lowest level since records began in 1974 and inflationary pressures are building, GBP/USD could weaken going forward due to its stagflation scenario.
On the other hand, the nervousness about Brexit is back in the news once the UK wants to break the Brexit agreement agreed with the EU two years ago. Meanwhile, expectations that the Bank of England will raise rates aggressively softened the tone of the meeting on August 4th. The odds of a 50 basis point rate hike stand at 65% versus 75% last week, and expectations for the following meetings are lowered, as STIR money market futures show.
Meanwhile, analysts at Scotiabank, in a note, wrote that they see limited upside potential for sterling, given the backdrop of “a weak economy and risk of further losses on overblown BoE hike expectations.” “.
“There are no major data releases this week that could improve the pound’s fortunes, and the currency should mainly follow the dollar’s tone. The BoE publishes its semi-annual financial stability report tomorrow, and Tenreyro (moderates) will speak later, while further speeches by Pill (neutral), Cunliffe (dovish) and Mann (hawkish) later in the week will also help refine BoE tightening expectations in upcoming meetings,” Scotiabank analysts added.
In terms of data, the UK economic docket will include the June S&P Global/UK CIPS composite and services PMIs, along with the financial stability report. In addition, the Governor of the Bank of England, Andrew Bailey, made a statement. US May Factory Orders, ISM Non-Manufacturing PMIs, Fed Speeches and June Non-Farm Payrolls will be released.
GBP/USD key technical levels
Source: Fx Street
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