06.07.202210:45 Forex Analysis & Reviews: GBP/USD collapses after the Bank of England's financial stability report

Pound fell to yearly lows after the Bank of England said the global economic outlook has noticeably worsened. The reason was rising commodity prices, which led to higher inflation around the world. The central bank noted that energy price volatility poses a risk of further disruptions to supply chains, which could exacerbate future economic turmoil.

The Bank of England's financial stability report indicated that officials will conduct stress tests in September to determine if the economy will undergo a "deep" recession due to further interest rate hikes. It also mentioned that despite spikes in inflation and soaring borrowing costs, most households and businesses are still able to cope. Debt service also remains affordable for most UK businesses, but higher interest rates and prices, weaker economic growth and continued supply chain disruptions will put pressure on corporate profits. As for wage growth and the government's support package, those will soften the blow to households, keeping the number of vulnerable borrowers at levels reached earlier this year.

GBP/USD is currently moving towards the 2020 lows. A breakdown of 1.1900 will lead to a further decline to 1.1860, 1.1820 and 1.1740, while a rise above 1.1970 will push the pair to 1.2020, 1.2070 and possibly 1.2120.