Inflation Peaks Above 5%
Throughout the pandemic the government has put many measures in place so that consumers and households can somewhat continue to with normal lives under the circumstances. We've seen a massive furlough scheme to help employees continue with a living wage while businesses are put under lockdown and forced to close.
This doesn't come with consequences as we see the UK is set to peak above 5% inflation, forecast to hit 6% by April 2022!
This also has investors, policy makers and economists forecasting an interest rate hike to curb the inflation next year.
Our economic indicators are showing a potentially bearish signs which suggests 2022 might not be a great year for the UK.
The technology summary page helps us at a glance to identify fundamentally what the economic data is suggesting.
What we've identified is that overall the macro currency strength meter, interest rate differentials and hedge fund positions are all suggesting bearish movements. The GDP differentials however is a contradictory factor.
Overall, we can take a fundamental bearish bias on GBPUSD moving forwards with majority of the indicators aligning that way.
Macro Currency Strength Meter
The macro currency strength meter shows the GBP has been on a downwards economic trend since November, you can check for free in the link above. USD on the other hand has maintained strong economic data for the past few months.
This divergence in economic data is a potential bearish directional bias for GBPUSD suggesting the UK is set to be weaker than the US in 2022.
Lets take a deeper dive into the other indicators.
The GDP differentials was one of the contradictory economic indicators as it showed the UK was actually set to grow stronger than the US in 2022 by 1%. This pushes the differential positively and is actually a bullish signal.
Interest Rate Differentials
The interest rate differentials on the other hand are showing bearish signs for GBPUSD as the UK currently has lower interest rates than the US...
This may change moving into 2022 however as both countries are set to review the interest rates due to growing inflation concerns.
Trade Analysis (Imports/ Exports)
Ford motor company is one of the United States largest car manufacturers which exports to the UK... Ford being a popular choice for many households.
What we've identified is an overall positive correlation between Ford prices and GBPUSD.
The most recent surge in Ford prices therefore goes against the bearish economic sentiment identified in the technology summary.
Gold prices is a commodity widely exported and considered a safe haven asset. What we've identified is a slightly negative correlation between GBPUSD and Gold suggesting GPB is a riskier asset in comparison.
Recently we've seen gold prices climb suggesting that gold prices are agreeing with the fundamental directional bias identified earlier.
Growing gold prices suggests a weakening GBP.
WTI is a major commodity, crude oil is a big export for the United States which at no surprise we have identified a strong positive correlation.
Whenever the prices of WTI rises we see GBPUSD follow and vice versa.
Most recent prices show WTI prices reaching pre-pandemic highs suggesting that if crude oil prices continue to grow we may see a slight correction before any bearish signs.
Overall... trade analysis is not agreeing with the fundamental direction.
Stock Market Analysis
The FTSE100 is a great economic barometer of wealth within the UK. Using the stock market index we can track whether the UK or the US is wealthier in comparison. FTSE100 prices reached an all time high back in Jan 2017 and since then has been declining... only recently has it recovered slightly since the pandemic.
Over the past year or so we've seen GBPUSD encounter a large downwards trend on price alone.
We're now seeing price action which suggest a bullish correction before a continuation.
Since prices have yet to hit an area of resistance it would be wise to wait for a confirmation on price before taking any action.
Definitely one to watch out for as we move into 2022.