For the month of August, the British pound has been the weakest currency. The trend continued on Monday with sterling extending its losses to a 3-year low versus the euro, a 1.5-year low versus the Swiss franc and a 1-month low versus the U.S. dollar. Although USD lost grounds against the major pairs, the GBP was unable to profit from this. It was trading up for most of the day, but was unable to hold on to these and closed pretty much unchanged to trade around the 1.30 level again.
At the time of writing, the British currency is trading at 1.2935 up from 1.209 in yesterday’s trading where it dipped below the 1.29 line for the first time in a month. The factors responsible for having the cable trade at roughly around 100 pips away from its 30-year low are the good US data which only had effect on the GBP and gold, and the BOE’s inability to buy up all the bonds it planned to, as part of its bond-buying program, because people didn’t want to sell, which signals that fear is still rampant and people want to hold onto safe havens. Also weighing on the pound is the expectations that the BOE will have to increase their stimulus program which includes further cutting interest rates to boost the economy. Traders are also looking closely at UK’s key data due this week which is expected to disappoint following the country’s decision to quit the EU.
The news due out of the UK this week includes inflation figures, as well as employment and retail sales numbers, which many believe will fall short of expectations as the UK grapples with Brexit uncertainty. Rightmove first-handedly reported over the weekend a second consecutive month of lower house prices, which contributed to the decline in sterling. If the disappointing results continued with this week’s consumer spending, inflation and labor-market reports, we could see GBP/USD at new 31-year lows and EUR/GBP at fresh 3-year highs.
If we can recall, the pound also fell in 2008 which started in August when analysts expected that the UK economy is heading into recession. The pound then fell to its lowest level against the US currency in almost two years on expectations that the BOE will be forced to cut the cost of borrowing to boost growth. This downward trend further continued until early 2009 before stabilizing for the next six years, going up or down.
But then Brexit happened, and even though the currency hasn’t yet recovered from the previous massive fall, it had started declining again. From a high at 1.5006 in the early morning of June 24, 2016 when the market was discounting a to stay in the EU to the low at 1.2798 after the shocking result, the currency fell 14.7% in less than two weeks, a mammoth devaluation for a major currency.
To put the price action in perspective, cable traded at a high of 2.1160 on November 2007 to a low at 1.2798 on July 2016. It is currently trading way below the 1.4780 resistance, which was the support in 2015. Evidently, it isn’t impossible to reach the 1.2802 support in the following days and the UK key data is expected to not be strong enough to prevent the fall.
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