BoE’s Bailey, Elevated US Bond Yields

GBP/USD and EUR/GBP Prices, Charts, and Analysis

• BoE will tighten further if needed.
• GBP/USD is under pressure from a stronger US dollar.

UK inflation is expected to ‘fall sharply’ over the coming, starting with the April number – released May 24 – according to BoE Governor Andrew Bailey as high energy prices begin to drop out of the annual calculations. Mr. Bailey, in a speech given at the annual British Chamber of Commerce Conference, also sees food inflation easing, although his timing on this is less sure. While positive on the path of inflation, the UK central bank remains fully committed to bringing down inflation to the 2% target and won’t flinch from hiking interest rates further if needed, Governor Bailey added. On a more positive note, Mr. Bailey added,

‘Having said all that, things are looking a bit brighter than they did a couple of months ago. As the MPC published its November Monetary Policy Report (MPR) last year, we expected a shallow but long recession in the UK economy. In the latest MPR, published last week, we are now forecasting modest, but positive growth and a much smaller increase in unemployment.’

Getting inflation back to the 2% target – BoE Governor Andrew Bailey

Cable (GBP/USD) is on the back foot over the last couple of days as higher US Treasury yields bolster the US dollar. The yield on the interest rate-sensitive US 2-year rose to a two-week high of 4.12% yesterday after various Fed members’ hawkish views on monetary policy hit the screens. The US 2-year currently trades with a yield of 4.08%. Interest rate cut predictions for this year are being pared back, bringing the market back towards the Federal Reserve’s stance that rates will remain unchanged, or move slightly higher, through the rest of the year.

GBP/USD currently trades around a prior short-term support level at 1.2447 with additional support from the 50-day moving average just below at 1.2391. Below here is a cluster of recent lows down to 1.2350. Initial resistance is seen at 1.2547 before 1.2515 (20dma), 1.2667, and 1.2680 come into view.

GBP/USD Daily Price Chart – May 17, 2023

Chart via TradingView

Retail Traders Increase Their Net-Long Positions

Retail trader data shows 51.10% of traders are net-long with the ratio of traders long to short at 1.05 to 1.The number of traders net-long is 11.93% higher than yesterday and 40.27% higher from last week, while the number of traders net-short is 14.13% lower than yesterday and 29.77% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/USD-bearish contrarian trading bias.

What is your view on the GBP/USD – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.