When all of Europe is in the same boat, and this boat is sailing against the current, one should not be surprised at the possibility of historic lows being renewed by the currencies of the eurozone. At present, the British pound is much closer to the anti-record than the euro, as the Bank of England looks more realistic than the European Central Bank. It has been talking openly about a recession for five quarters, which is pushing the GBPUSD quotes towards the lowest levels since 1985.
When Federal Reserve Chairman Jerome Powell in Jackson Hole kills global appetite for rice with his hawkish rhetoric, Goldman Sachs predicts a 1% contraction in Britain's economy over the next 12 months, and the higher repo rate peaks expected by the money markets and the rise in British bond yields do not help GBPUSD, bulls can only hope for a miracle.
Amid talk that inflation in 2023 will exceed 18%, and a large number of families will face energy poverty due to an increase in the cost of gas bills by 80%, the prospects for the GDP of Great Britain are deteriorating every day. Moreover, the main favorite for the premiership, Liz Truss, prefers tax cuts rather than helping affected households. Under such conditions, the BoE may have no other option but to send the UK economy into recession and induce massive job cuts to curb price pressure.
The derivatives market expects the REPO rate to rise from 1.75% to 2.75% by November and to 4.25% in 2023, which will be its highest value since 2008. Theoretically, an increase in borrowing costs should lead to a strengthening of the national currency, however, tightening monetary policy will only widen the economic growth gap between the US and Britain and push the GBPUSD to historic lows.
Dynamics of expected REPO rate values
The recession is far from the pound's only headache. The fact that, according to Powell, the Fed has not done its job, and that interest rates will not only continue to rise, but will find a home at a high level for a long time, undermines global risk appetite, increases demand for the US dollar as a safe-haven currency and reinforce the peak of the GBPUSD.
At the same time, rumors about Liz Truss's readiness to initiate the implementation of Article 16 of the Brexit Agreement if she receives the portfolio of the head of the British government, which could lead to the rupture of the entire agreement, increase the political risks of the pound. The European Union is threatening a trade war and has already sent the case to court. London must provide a response to the lawsuit by September 15. The revival of the Brexit theme and the trade battles are bearish factors for GBPUSD.
Technically, on the daily chart of the analyzed pair, a pronounced downward trend continues in the direction of the target at 161.8% according to the pattern of harmonious trading AB=CD. It is located near the 1.14 mark. We continue to adhere to the strategy of selling GBPUSD on pullbacks, which brought us a lot of money in 2022.