The GBPUSD currency pair was trading down over 29 pips as the US dollar rallied against the Sterling pound as investor risk appetite abated slightly. The currency pair is still on track to reaching its January 2023 and December 2022 highs, where it will face significant resistance.
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The bulls seem to be losing momentum, given the currency pair’s recent price action, as most bullish days are followed by bearish days. Still, some analysts are betting on the pound remaining stronger than the US dollar due to internal and external factors.
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The GBP could be supported by the improved global risk appetite, which favours risk assets such as the pound and euro. It could also benefit from the expected decline in supply-side inflation during the summer leading to an improvement in the UK’s trade balance.
The markets seem to have already concluded that a financial crash has been averted and that no more banks will go under or face bank runs after the Fed reassured investors that it would step in and protect customer deposits whenever they are at risk.
The UK’s financial sector is in better shape than the US because British banks do not have as much leeway regarding their clients and the risks they take, especially following the 2008 global financial crisis that took out some major banks.
Most British banks serve a broad base of clients, hence, have diversified their risk profile. The banks also operate under strict regulations, which have protected them from the recent crisis. The banking crisis saw three US banks fall into receivership and a Swiss bank saved from going under by a competitor who bought it for a discount.
The GBPUSD was also boosted by comments from the UK Finance Minister, Jeremy Hunt, who said that he wants to simplify taxes while emphasising that the country cannot finance tax cust with additional borrowing. Hunt further explained that the government was now on solid financial footing and paying its debts.
Jeremy Hunt also expressed confidence in the government’s inflation forecasts but reiterated that there was no room for complacency. Therefore, despite today’s decline, most analysts remain bullish about the Sterling pound.Â
*This is not investment advice.
The GBPUSD price chart.
The GBPUSD currency pair was trading down 29.8 pips (0.24%) as the US dollar gained against the Sterling pound.
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