GBP/USD Forecast After the Major Citi Warning on UK Inflation
The GBP/USD exchange rate crashed to a low of 1.1787, which was the lowest level since July 14th of this year. It has fallen by almost 7% from the highest level since June this year.
The GBP to USD exchange rate plummeted after the Citigroup published a major warning about the UK economy. The report said that the country’s consumer inflation will likely soar to 18.6% in 2023, the highest level in almost half a century.
Citigroup attributed this warning to the soaring energy prices. It expects that the country’s retail energy cap will be hiked to 4,567 pounds in January and then 5,816 pounds in May. The cap currently stands at 1,971 pounds a year. This cap limits how much households pay for heating and electricity.
Analysts and Goldman Sachs and EY believe that inflation will soar to about 15% in January. Similarly, the Bank of England expects that it will start 023 at about 13%.
These figures have put the Bank of England (BoE) in a defensive mode. For one, the bank has already hiked interest rates six times since December last year and there are signs that this increase will continue.
Additional rate hikes will likely plunge the UK into a major recession. Indeed, in a recent report, the International Monetary Fund (IMF) warned that the country will have the slowest recovery in the G7.
The GBP/USD price also declined sharply because of the soaring volatility and risks in the markett after the slowing Chinese economy. The country’s central bank lowered interest rates while the biggest housing company warned that profit will drop by about 70%.
The hourly chart shows that the GBP to USD exchange rate dropped sharply as the dollar bounced back. It fell to a low of 1.1780 and moved below the 25-day and 50-day moving averages. Further, the pair dropped below the important level at 1.200, which was the neckline of the double-top pattern. Therefore, the pair will likely keep falling as sellers target the key support at 1.1700.