Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious Outperformance
Find Stocks Now

GBP/USD Fundamental, Technical Outlook Is Negative

Published 07/04/2016, 04:02 AM
Updated 07/09/2023, 06:31 AM

Last week the British pound consolidated versus the US dollar after a big selloff in the previous week.

GBP/USD failed to settle above 1.3500 and didn’t close the gap. The problem is that the political and economic future of Britain remains very uncertain. The ruling conservative party will be choosing new leadership during the coming 2 months, while the European Union is urging the UK to present a quick and clear plan of its exit.

Traders see now that Brexit won’t happen immediately, but there is little doubt that it is going to happen. The consequences for the British economy will be negative, as the EU is the nation’s main trading partner. S&P has already slashed the UK's top credit rating.

The Bank of England is doing its best to avoid disruptions in the British financial system by providing liquidity to commercial banks. In addition, the BOE Governor Mark Carney said more stimulus would probably be needed over the summer, so analysts now expect the central bank to cut the benchmark interest rate or announce QE in August, after assessing the situation in July.

To sum up, the fundamental outlook is negative for the pound, and attempts to buy the British currency look risky. This week the UK will release construction PMI on Monday, services PMI on Tuesday and manufacturing production on Thursday. Even if data are good, the upside potential for the British currency will be limited. We will also hear more from Carney on Tuesday.

Technically, GBP/USD will likely have more consolidation in the 1.3500/1.3120 area. The pair is vulnerable for a decline to a psychological level of 1.3000. Further resistance is at 1.3700, 1.3850 and 1.4000. Only above the latter will negative pressure ease.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.