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The British Pound to US Dollar Range-Bound at 1.2260 Levels

British Pound to USD fluctuates within a narrow band at 1.2260, trading between 1.2278 and 1.2231 last week, amid rising inflation and political problems.

Rising inflation, high commodity prices, and Northern Ireland protocol problems kept the British Pound range-bound at the 1.2260 levels last week.

The British Pound to the USD has been declining since June 2021. It hit 3-year highs at 1.4250 in June 2021 but slid 14% to reach 1.2262 in June 2022.

The GBP/USD currency pair has strong support at 1.2204 levels. A move above 1.2328 will take the currency pair towards the 1.2350 regions.

British Pound to US Dollar Moves within a Tight Range
British Pound to US Dollar Moves within a Tight Range

British Pound Hit by Rising Inflation

Inflation at 9.1% is at a 40-year high in the United Kingdom.

The British Pound to US Dollar slipped to a two-year level, at levels last seen in March 2020, during the covid pandemic, when the forex and stock markets hit new lows across the globe.

Economic activities slumped during the covid pandemic as the UK government introduced lockdown restrictions to curb the pandemic infections. The British Pound was one of the worst-hit currencies in March 2020, as the number of deaths increased during this period in Britain.

UK Inflation at a 40-Year High

The forex market is in a frenzy over the high inflation. The Bank of England has to increase interest rates to combat inflation. The market expects the BoE and the ECB to announce rate hikes soon.

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Bank of England expects inflation to reach double digits in the last quarter of this year. Inflation may be at 11% in October, predicts the Bank of England. The UK Office for National Statistics claims that inflation was at 9.1% in May, at record-high levels. High inflation has brought up commodity prices. Monthly income is not sufficient to meet everyday needs in the United Kingdom. Inflation was at 9% in the previous month.

Crude oil soared higher to touch $120 per barrel. Crude now trades at $108 per barrel, as the Ukraine invasion by Russia has led to a supply crisis. Rising crude prices are the chief cause of the high inflation in the country. Petrol prices have gone up by more than 30% in the past 1-year. The United Kingdom faces an energy crisis amid the Russia-Ukraine war. Oil and gas supply have dropped as the supply chain disruptions hit the production sector.

Wages have gone down in the United Kingdom. Despite high inflation, labor rates have fallen while housing prices have gone up.

Weak economic data in the United Kingdom fuels fear of a recession. Bank of England will have to face recession problems if there is any sharp increase in rates.

The Northern Ireland Protocol

The UK and EU trade impasse is causing tension for the authorities. There are many misgivings over the Northern Ireland Protocol between the two countries during the Brexit agreement. The GBP/USD pair has lost steam over the rising political tension caused by the negotiations agreed upon when the United Kingdom left the EU.

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There are unnecessary delays in the transit of goods across the Northern Ireland borders, resulting in extra costs. The EU says that the UK government is not following the Northern Ireland protocol agreed upon during the Brexit deal. The British Pound hovers with mixed anticipation at the 1.2262 level.

Trending Currency Pairs

US Dollar

The US Dollar softened after the strong rally in recent times. It hit a 1-year high at 105.56 last week but has slipped lower to touch 103.95 levels at close on Friday, June 2022.

The Federal Reserve has been on an aggressive rate hike in recent months. Analysts expect the Fed to tighten policy rates by another 75 bps in the July meeting. Federal Reserve Chairman Jerome Powell says that taming inflation is the top priority of the US central bank. Geopolitical pressure is the cause of the rising inflation in 2022.

Treasury yields are moving higher while the stock market has weakened.

EUR/GBP

The Euro to British Pound is at 0.8604 levels. The EUR/GBP currency pair moved with a positive bias for four days last week and surged past the resistance at 0.8588 levels.

A break above 0.8615 will keep the Euro to British Pound currency pair on an upward trajectory.

GBP/JPY

The British Pound to Japanese Yen rose to 168 levels last week but closed at 165.75 on Friday. The GBP/JPY currency pair slumped sharply on Friday amid high selling pressure.  The Japanese Yen is one of the top-performing currencies in the forex market. The pullback in crude prices helped strengthen the Yen, as Japan is a leading importer of crude oil.

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GBP/INR

The British Pound to the Indian Rupee was range-bound last week between 95.33 and 96.24 levels. Once the GBP/INR pair crosses the resistance at 96.00 levels, it may rise to 96.33 levels.

The need of the hour is to curb inflation in the UK.

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