British Pound Forecast – Neutral/Bearish
GBP/USD and FTSE 100 Analysis and Charts
- UK jobs and inflation reports may give clues to the future of UK rates.
- A strong US dollar has hammered GBP/USD down to the 1.25 level.
- FTSE 100 hits a 14-month high.
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Most Read: US Inflation Jumps. Rate Cut Expectations Pared Back Sharply
The latest UK jobs and inflation reports are released next week against a backdrop of a global re-pricing of interest rate cut expectations. Markets have pushed back the first UK rate cut to the September 19th BoE meeting – although the August 1st meeting is still in the frame – compared to forecasts of a June cut just a couple of weeks ago. This mirrors the move in rate expectations seen in the US, which gained further momentum this week when US CPI data showed that inflation remains uncomfortably sticky for the Federal Reserve. This week’s aggressive re-pricing in the US sent the dollar sharply higher across the FX market, hitting a wide range of USD pairs. With UK inflation data out next week, any deviation from market forecasts will add extra volatility to GBP/USD
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GBP/USD has been hit by heavy selling pressure since the US CPI release and is trading around 1.2500, a level not seen since November last year. Wednesday’s sell-off saw the pair break below all three simple moving averages with ease and these technical indicators will now act as resistance if cable moves higher. The next levels of support are seen at 1.2381 and 1.2303. GBP/USD looks oversold using the CCI indicator and this may temper any further sharp sell-offs in the short term.
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GBP/USD Daily Price Chart
IG Retail data shows 64.84% of traders are net-long with the ratio of traders long to short at 1.84 to 1.The number of traders net-long is 4.58% lower than yesterday and 27.20% higher than last week, while the number of traders net-short is 5.19% higher than yesterday and 21.92% lower than last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.
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of clients are net long. of clients are net short.
| Change in | Longs | Shorts | OI |
| Daily | 29% | -24% | -2% |
| Weekly | 14% | -22% | -5% |
The weak British Pound has helped the FTSE 100 push higher with the UK at levels last seen over a year ago. Many FTSE 100 companies earn a substantial portion of their profits in foreign currencies. When these profits are converted back to GBP, they are worth more due to the weaker pound, thus boosting the company’s earnings. A weak pound also makes a range of UK assets, including stocks, more attractive to foreign investors, driving up demand for FTSE 100 stocks.
The FTSE 100 posted an all-time high of 8,045 on February 13th last year and this print is now under pressure. Above here both 8,100 and 8,200 may offer short-term resistance if the current bullish sentiment continues to dominate price action. Initial support is seen at a prior swing high at 7,937.
FTSE 100 Weekly Chart
What is your view on the British Pound and the FTSE 100 – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.