Risks of continued high global interest rates puts pressure on the British pound

03 October 2023 132
Risks of continued high global interest rates puts pressure on the British pound

The GBPUSD currency pair is updating multi-month lows. Risk aversion remains in the world markets. Investors are actively buying the U.S. dollar, as the global debt market began to cause concern again.

The dollar index hit a new 10-month peak while Treasury yields hit a 16-year peak. Monday's data showed that U.S. industrial production continued to recover in September.

Fed officials say interest rates should remain high for "some time" to bring inflation back to the 2% target. However, their visible unanimity masks an ongoing debate over another rate hike this year.

Kyle Rodda, financial market analyst at Capital.com, claims that everyone was surprised by the resilience of the U.S. economy, including policymakers.

According to CME's FedWatch tool, markets are assuming a 45% probability of another 25-basis-point rate hike this year, but also a 42% chance of monetary policy easing in the first half of 2024.

The Bank of England maintains a tough stance on monetary policy as well. But keeping rates high will negatively affect the global economy in the future. The longer they are kept higher now, the more problems the world will have later. Investors fear this and choose safe-haven assets, which historically includes the U.S. dollar. For this reason, the British pound is now being pressured.

One of the Bank of England's officials, Catherine Mann, has warned about giving up the fight against inflation. She is rather skeptical of the central bank's forecasts and expects interest rates to remain high for a prolonged period of time.

Mann said policymakers face a world in which inflationary shocks are likely to be a common occurrence. That means interest rates have to keep rising.

According to the technical analysis, the GBPUSD currency pair is accelerating its downward movement. The nearest support is the price consolidation at the beginning of the year. Thus, the further downside target will be the 1.19 level. A Stop-loss will be set at the return to the consolidation of the last trading days, which corresponds to the price of 1.215.

GBPUSD is likely to decline:

Take profit – 1.190

Stop-loss – 1.215

This content is for informational purposes only and is not intended to be investing advice.

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