- Markets leaning towards possibly one last BOE rate hike (implied rate peak of 5.527% at Feb 1st, 2024 meeting)
- UK house prices tumble to lowest levels since 2009
- Doji pattern is possibly invalidated as bearish momentum remains
The British pound is declining as expectations grow for the BOE to deliver one last hike as the consumer is quickly weakening. Stagflation risks are here as housing market concerns worsen and are now accompanied by a cautious consumer who is battling rising inflation expectations. Any lessons learned from the ECB could be that the BOE will have a much worse growth outlook.
The latest update from retailers, John Lewis and Waitrose signaled a tough environment as the consumer struggles with inflation and becomes cautious with big-ticket goods. John Lewis was expected to deliver a major overhaul, but a 4% drop in online sales means they won’t be turning profitable anytime soon. If they have to wait till 2028 to turn a profit, investors might become more skeptical about the UK consumer spending trends.
Housing Woes
A key UK house price index fell to a 14-year low reinforcing the belief that the property slump will not be improving anytime soon given how high mortgage rates have risen and over a deteriorating outlook. Both Halifax and Nationwide are highlighting falling house prices and that trend will likely continue.
The GBP/USD (daily chart) as of Thursday (September 14th 2023) has made a significant breakdown below multiple support levels, indicating a potential acceleration for the pair. Price action has fallen below the 200-day SMA and could target the June low at around the 1.2310 level. Given the recent string of upbeat US economic data points, the King US Dollar might have one major rally before exhaustion settles in.
To the upside, the downward-sloping trendline that started in the middle of July provides major resistance. If the price is able to close above 1.2550, further upside could be targeted if Wall Street is convinced that the Fed has a peak in place for rates.