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Jul 01 - 11:55 AM

GBP/USD - COMMENT-Sterling Dips Below 1.20 As Traders Dial Back Hawkish Moves In 2023

By Paul Spirgel  —  Jul 01 - 09:50 AM

The hits keep coming for GBP/USD.
Sterling has moved progressively lower from its Asia open high by 1.2172, to down 1.4% by 1.20 in early NorAm.
Friday's UK Mfg PMI nZRN004LXJ came in below forecast adding to the pound’s woes, as low rates and post-Brexit trade angst keep steady downward pressure on GBP/USD.

Despite GBPOIS BOEWATCH indicating an 80% chance for a 50bp hike at the Aug 4 BoE MPC meeting, an increase from recent +25bp moves, traders foci have shifted as global recession fears mount, from the front-end of the curve, where inflation-fighting resolve remains intact, to the belly of the curve, where 3-month Sonia futures indicate UK rates begin falling in H2 2023.

Global recession fears are not limited to the UK, and most developed economies are hinting at lower rates in 2023, but the problem for GBP/USD bulls is the peak in UK rates, at 2.86% in March 2023, remains well below the peak in U.S. rates, currently 3.64% in Dec 2022.
By comparison, the U.S.-UK rate nadir in 2025 indicates U.S. rates pricing 50bps higher.

Unless the Fed shifts its rate normalization tack to a significantly more dovish path, it is likely GBP/USD will test lower 30-d Bolli support by 1.1979 and 2022 lows by 1.1934 putting early Covid lows by 1.1413 in sharper focus.

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Refinitiv IFR Research/Market Commentary


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