The British pound has fallen significantly during the Monday session as the 1.22 level has been pierced, just as the recent lows have been broken. The interest rates in the 10-year note continue to rise in America, which will make the US dollar much more attractive. At this point, the Federal Reserve is backed into a corner, and therefore will be forced to tighten monetary policy going forward. This makes the US dollar much more attractive, especially when it is looked at through the prism of a safety asset.
At this point, I would anticipate that the British pound should go lower, reaching the 1.20 handle. The 1.20 handle is an area that has been important more than once, so therefore it’s very likely that we will continue to see a lot of fighting in that area. If we can break down below there, then it’s likely that we will continue to see even further losses, and I just don’t see how the British pound turn things around.
More likely than not, we may get a short-term rally, but that rally for me is going to be an opportunity to pick up “cheap US dollars.” The 1.24 level is what I think could be the ceiling right now, but this remains to be seen. I don’t think that we have enough momentum to continue to go higher, and therefore we need to see signs of exhaustion and therefore we can jump on them. I just don’t see how the Federal Reserve has the ability to change its trajectory or a now, due to the fact that inflation in America is raging at levels not seen in over 40 years. Because of this, we will continue to see the Federal Reserve have to tighten, and therefore we will continue to see the US dollar strengthen.
Something is eventually going to break. I don’t necessarily think it will be the British pound, but there are a lot of candidates out there. We have already seen crypto completely collapse, and it’s probably only a matter of time before the credit markets do the same. At this point, the US dollar is just about the only asset that you want to own, so it won’t be any different here.
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