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GBP/USD slides after Fitch’s downgrade

Started by PocketOption, Oct 07, 2022, 04:16 am

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PocketOption

GBP/USD slides after Fitch's downgrade

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GBP/USD is down sharply today. In the North American session, GBP/USD is trading at 1.1150 down a massive 1.58%. The pound continues to exhibit sharp volatility, with swings of over 1% every day this week.


Fitch downgrades UK debt outlook


The fallout surrounding Chancellor Kwarteng’s ill-fated mini-budget just won’t go away. After immense pressure, Kwarteng abolished the tax breaks for the top 1% earners in a humiliating U-turn that has badly damaged the credibility of the new government. The fiasco sent the pound to a record low and forced the Bank of England to step in after the bond market was close to crashing. On Wednesday, the Fitch ratings agency lowered its outlook for UK debt from “stable” to “negative”, following a similar move by Standard & Poor’s after the mini-budget. Fitch did maintain the UK’s credit rating of AA-, but the lower outlook will not help Prime Minister Truss’ beleaguered government.


The pound was pummelled in September, losing 3.9%. The outlook for the pound does not look good, with soaring inflation and the new government’s serious missteps after only a few weeks in office. Manufacturing PMI remained below 50, which indicates contraction. Today’s Construction PMI rose to 52.3, up from 49.2, but much of the improvement was due to an easing in supply shortages, and new orders fell to their lowest level since May 2020.


In the US, the spotlight will be on Friday’s nonfarm payroll report. The reading is an important bellwether of the health of the US economy and can provide insights into the Federal Reserve’s future rate policy. On Wednesday, the ADP employment report showed a slight improvement at 208,000, up from 185,000 (200,000 est.) The ADP release is not a reliable forecaster of the official NFP release, but ADP is now using a new methodology, which hopefully will improve its reliability. Non-farm payrolls are expected to decline to 250,000 in September, down from 315,000 in August. A reading that is well off the estimate could trigger volatility from the US dollar – a strong reading will raise expectations that the Fed will stay very aggressive, while a soft release could mean the Fed has to pivot earlier than it expected.


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GBP/USD Technical



  • GBP/USD is testing support at 1.1206. The next support line is at 1.1085

  • There is resistance at 1.1350 and 1.1486


Source: GBP/USD slides after Fitch's downgrade