British Pound Forecast: GBP/USD Heading Swiftly Toward March 2020 Lows

[MongiIG]

POUND STERLING ANALYSIS & TALKING POINTS

• Planned fiscal stimulus weighs on GBP.
• 10-year Gilt yields through 3%.
• Fed speakers in focus later today.

GBP/USD FUNDAMENTAL BACKDROP

Cable has been unable to shirk off a surging USD, while the appointment of Prime Minister Liz Truss has provided no respite. If anything, the appointment looks to deliver more downside risk for the currency as proposed fiscal support measures of £130bn (energy) and £40bn (business) respectively adds to an already poor UK current account situation (see graphic below).

GBP/USD vs UK CURRENT ACCOUNT BALANCE vs UK 10Y GILT YIELD

Source: Refinitiv

Fundamentally, high inflation, high energy prices, increasing deficit, recessionary fears and post-Brexit uncertainty have resulted in investors shying away from the UK as shown by UK 10Y Gilt yields pushing above 3%. While Truss’s efforts may relieve the weight on consumers short-term, the long term effects could be severe for low income and indebted citizens.

GBPUSD technical analysis

Sep 7, 2022 | DailyFX by Warren Venketas, Analyst