Sterling Weak Due To Energy Crisis
InstaForex Group | Sep 20, 2021 05:08AM ET
The pound sterling's sharp decline has slowed down a little. In the first half of Friday, it was trading flat, even though the UK macroeconomic data turned out to be much worse than forecasts.
UK retail sales declined to 0.0% from 1.9%, whereas economists had expected an increase of 2.8%. On a monthly basis, the indicator was even worse. Instead of a 0.7% rise, retail sales decreased by 0.9%.
Currently, the UK is facing a double whammy: falling consumer prices and dropping retail sales. Usually, such negative data triggers panic in the market, especially given that these reports are viewed as a barometer of economic health.
Surprisingly, the pound sterling did not react to this data at all. Yet, at the opening of the US session, the British currency resumed a downward movement. Moreover, the fall turned out to be even steeper than the day before. The fact is that the rapid increase in power prices has finally hit the real sector of the economy.
There were rumors that a large international fertilizer producer was suspending the operation of two of its plants in the north of England due to rising gas prices. On Friday evening, these rumors were confirmed by an official statement of the company.
Apart from that, there were reports about the possible bankruptcy of four British energy companies. Over the weekend, this list was expanded to five. The firms are likely to declare bankruptcy this week.
The UK Secretary of State at the Department of Business, Energy, and Industrial Strategy on Saturday held an emergency meeting with representatives of the energy sector. However, this meeting can hardly be called successful as those five energy companies revealed the approximate timing of bankruptcy filings after the meeting.
Energy companies are dealing with financial difficulties due to the consequences of a sharp increase in power prices. There is no doubt that the UK macroeconomic statistics will deteriorate significantly in the near future. Besides, fresh data turned out to be quite disappointing.
h2 UK Retail Sales/h2The pound/dollar pair fell by 100 pips during inertial movement. It triggered an increase in the volume of long positions on the US dollar relative to the correction in the period from Aug. 23 to Sept. 3.
The technical indicator RSI was below the 30 line, signaling that it had entered the oversold zone. Shortly after, there was a slowdown in the downward movement. On the daily chart, we can see a recovery of the US dollar by about 70% relative to the correction.
h2 Outlook/h2
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The pound sterling is currently oversold, which may lead to a rebound. At the same time, bearish sentiment is quite strong in the market. So, the quote is likely to gradually decline to the support level of 1.3600.
Complex indicator analysis gives a sell signal on short-term and intraday charts due to the inertial movement. Technical indicators give a sell signal in the medium term as well because of a descending cycle.
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