GBP/USD: Slowing growth and higher inflation is a negative mix for the pound – MUFG

The GBP/USD pair could accelerate to the downside if the 1.3600 support area is broken, according to analysts at MUFG Bank. Their target from current levels is seen at 1.3200, with a stop-loss at 1.3950.

Key Quotes:

“We are establishing a short GBP/USD trade idea which is based on our scepticism of the current pricing in the rates market being sustained. Macro-economic conditions are worsening and data released today on consumer confidence and retail sales suggest there is already an impact from the increasing reports of the rising cost of living and how this could quickly erode consumer spending power at a time when nominal income are about to suffer. The universal credit support of an additional £20 per week will end on 13th October while the larger than originally expected 1.4mn workers still on furlough will suffer with the furlough scheme ending next week.”

“While demand for labour is strong and these furloughed workers should be absorbed, there will inevitably be a period of uncertainty. The government today has announced some loosening of visa controls to allow for increased employment of HGV drivers from Europe but the measure is likely to take time to have an impact. Rising energy bills and further collapses of energy supplier companies will also weigh further on sentiment.”

“1.3600 looks like an important technical support level, and we see a high risk of a breach, possibly next week which has potential to accelerate the near-term momentum to the downside.”

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