Pound Plunges Amid Worsening Situation in the UK | Daily Market Analysis

Key events:

• UK - Construction PMI (Dec)
• Eurozone - CPI (YoY) (Dec)  
• USA - Nonfarm Payrolls (Dec)
• USA - Unemployment Rate (Dec)
• Canada - Employment Change (Dec)
• USA -  ISM Non-Manufacturing PMI (Dec)
• Canada - Ivey PMI (Dec)

  The British currency is actively declining against its U.S. competitor during Thursday's trading session. The pair GBP/USD is testing the support at 1.2000 and keeps the potential for an even greater decline. The pressure on the pound continues to be exerted by the worsening economic situation in England, as well as the local strengthening of the dollar. 

​

The UK economy is facing unprecedented domestic challenges, including high inflation, falling citizen wealth, rising costs of living, a record influx of migrants, and growing dissatisfaction with working conditions among public sector workers. In particular, the British Rail, Maritime and Transport Trade Union (RMT) reports that about 40,000 rail workers are already taking part in this week's protest, demanding higher wages and reversing management's decisions to cut staff. For this reason, about 62,000 trains may be canceled, which will make it difficult for Britons to return to the country after the Christmas holidays. The situation is complicated by a possible political crisis since after the failures of the Liz Truss government there is still discontent in society and the level of skepticism towards the new government is growing. In his New Year's address, Prime Minister Rishi Sunak said that his government would put the needs of the population first this year and would make every effort to resolve the crisis. At the same time, the representatives of the Bank of England said that the British economy in 2023 will face a recession, which may be the most severe compared to other G7 countries.

​

The U.S. currency, on the contrary, keeps on growing amid the protocols of the latest U.S. Federal Reserve Board meeting which was published the day before. The document suggests that none of the 19 members of the Fed's top management considers it reasonable to reduce the basic interest rate this year. The Fed leadership also stressed that it would take significantly more evidence of progress to be certain that inflation is on a steady downward trajectory. Until then, rate hikes will continue. Given the above, "short" positions on GBP/USD pair remain a priority.