Forex, News, Price Analysis

GBP/USD Prediction as UK Enters Stagflation Era

Briefly –

  • GBP/USD has seen a massive bearish trend.
  • The UK announced weak GDP figures, with the economy nearing a recession.
  • Market players remain concerned about prevailing stagflation.

GBP/USD extended its downturn following somewhat weak United Kingdom GDP numbers plus escalating recession worries. The pair plummeted to the 1.2267 low, hitting the lowest mark since 16 May. Moreover, it has dropped over 9% YTD.

United Kingdom GDP Data

The United Kingdom economy stares at stagflation and recession. Economic stats by the ONS (Office of National Statistics) revealed the economy deteriorated for the 2nd consecutive month amid rising inflation.

The UK saw its economy contracting by 0.3% in April, extending a 0.1% drop in the prior month. The decline remained worse than the 0.1% uptick median estimate. Moreover, the nation’s economy increased by 3.4 on a Y/Y basis, lower than 6.4% over the previous year.

Other figures by the ONS indicated that UK’s manufacturing production noted a 1% decline, whereas industrial production lost 0.6%Meanwhile, these productions increased only 0.5% and 0.6% on a Y/Y basis. Moreover, the United Kingdom’s construction production fell 0.4% in April, following the previous month’s 1.7% surge.

Such figures meant entering stagflation, a phase with increased inflation and low commercial growth. Furthermore, stagflation led to a recession in most cases. Thus, GBP/USD sees declines as the Bank of England (BOE) finds itself in a challenging spot. Inflation stays elevated even after four interest rate hikes. It will likely introduce another 0.25% rate increase this week.

Also, the pair falls as market players await more hawkish commentary from Fed Reserve. The US Fed will likely extend its hike following massive inflation data last week.

GBP/USD Prediction

GBP/USD witnessed massive bearishness over a previous couple of days (according to the daily chart). Moreover, the pair crashed within the last four consecutive days, approaching the lowest mark in 2022.

GBP/USD declined beneath the 25- and 50-dau MA, whereas the Moving Average Convergence Divergence moved under the neutral mark. Thus, the road with fewer hurdles remains bearish, with support near 1.2162.a move past the 1.2400 resistance will cancel the bearish outlook.

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