GBP Price Outlook: Cable Coils Into Narrow Range Ahead of Blockbuster Week
The Pound is now bouncing back after its multi-month lows. But is the recovery on track to continue?

Amid the recent turmoil in UK politics, the British pound has been under pressure. This has been particularly evident in the aftermath of the EU referendum. However, a series of positive economic developments have seen the pound rebound in 2022.

GBP Price Outlook: Cable Coils into Narrow Range Ahead of Blockbuster Week
Following a week that saw the UK Pound fall to its lowest levels since mid January, GBP has bounced back this week in anticipation of the Bank of England’s interest rate hike. The market mood was initially cautious, with the safe-haven Dollar making gains. But the market mood turned upbeat and the Pound began to recover after the Federal Reserve’s interest rate decision.

Analysts are still not confident that the pound will return to the record lows seen in September. But a recent dovish shift from the BoE is expected to help bolster GBP and support the currency.

In the meantime, analysts are also optimistic that the UK economy will remain resilient in the coming years. Although the country faces a number of macroeconomic and balance of payments challenges, these are tempered by its relatively stable financial system and strong public sector balance sheets.

This should help to limit the impact of the ongoing recession and inflation, which have both exacerbated the risk-sensitivity of the currency. This could help the pound to withstand the potential effects of the BoE’s upcoming interest rate hike, which is expected to take effect in March.

The pound’s outlook for the year is still uncertain, with a broader monetary policy divergence between the Bank of England and the Federal Reserve likely to persist. As such, the pound’s resilience is limited until the Fed and BoE meet in late February.

Despite the strong US employment data, the UK unemployment rate remains above 5%, with further job cuts in the coming weeks threatening to weigh on Sterling. Meanwhile, construction industry growth is lagging behind expectations.

Next week will see the release of the S&P Global/CIPS construction PMI for January. Currently, the index is forecast to show that the UK construction sector is in contractionary territory, which may weigh on Sterling during Monday’s session.

Traders will also be watching the BoE’s interest rate decision, as it is anticipated that a 50bps increase will be announced. However, with the language used by BoE Governor Andrew Bailey indicating that the next rate hike would be smaller, this could put Sterling in danger of ending the week over the cliff’s edge.