The GBP/USD pair failed to break the key 1.26 resistance, and traders sold this week’s rally, bringing sterling half a percent lower on Wednesday. At the time of writing, GBP/USD traded near 1.2540.
More bearish news for GBP?
According to Commerzbank economists, the pound is expected to stay under pressure as the Bank of England (BoE) is expected to disappoint investors next week.
“We see the risk that the market’s interest rate expectations, which rose again recently, will be disappointed and that sterling will come under depreciation pressure. However, we are unlikely to gain any additional insight before 16th June.”
The latest figures from the UK mortgage firm Halifax indicated that property prices fell further in May as the market showed symptoms of cooling, with increasing inflation beginning to impact purchasers.
The annual rate of rise in home prices dropped to 10.5% in May, down from 10.8% in April. After a 1.2% gain in April, prices grew for the 11th month in a row in May, rising by 1.0%. According to Russell Galley, managing director of Halifax, housing shortages remained the primary driver of costs.
“However, the housing market has begun to show signs of cooling. Mortgage activity has started to come down and, coupled with the inflationary pressures currently exerted on household budgets; it’s likely activity will start to slow,” he said.
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Additionally, the UK construction PMI declined from 58.2 to 56.4 in May, undermining the Pound further. Last but not least, the UK services PMI business activity index fell to 53.4 last month from 58.9 in April, the weakest headline reading since February 2021, when the country was in lockdown.
“May data illustrates a worrying combination of slower growth and higher prices across the UK service sector,” said Tim Moore, S&P Global Market Intelligence economics director.
In macroeconomic news, the World Bank lowered its global growth projection earlier this month, citing the Ukraine crisis as exacerbating the effects of the Covid-19 outbreak and warning of stagflation concerns.
In its Global Economic Prospects report, the Bank stated that global growth in 2022 will fall to 2.9% from 5.7% a year ago, down from a prediction of 4.1% in January.
The GBP/USD pair remains stuck between 1.26 and 1.24. We must see a break from this range for some momentum to build up. Until then, the immediate outlook seems neutral.