by Jon Beddell
Foreign Currency Market Update – GBP / USD Update
Today’s weekly chart shows a “bearish engulfing pattern” which analysts are pointing toward as evidence that Sterling has peaked. After rallying from lows around 1.42 over the last three months Sterling fell sharply last week as investors flocked for the safe haven of the US dollar in response to steep declines in the stock markets as evidence of slowing growth increases the cha ges of a double dip. Risk aversion is taking hold, driving a strong rally in the US dollar and Japanese Yen, while other currencies such as the Euro and Sterling are effectively treading water.
A widely expected moderation in UK consumer price inflation was confirmed yesterday. The figure came in at 3.1% for July, down slightly from 3.2% in June. Technical factors were also blamed for yesterday’s weakness after the Pound broke major support levels against the US dollar, leading to broader based selling.
The Pound is trying to put best foot forward this morning after the minutes from the latest Bank of England meeting showed that the nine strong committee voted 8-1 in favour of no change in interest rates. The lone voice for a rate hike was Andrew Sentance, who has voted for tightening at the last few meetings. Investors will be mildly reassured that Sentance is sticking to his guns after a run of weak data on the housing market, and the slowing inflation outlook contributed to a general feeling that we are sliding toward a double dip.
Clients with US Dollar requirements should consider hedging at least half now to avoid the risk of further downside. Alternatively, we have seen a good bounce from the interbank low of 1.5495 this morning. Clients may wish to place stop orders below there (based on the interbank rate) to benefit from any continued rally while limiting the risk of renewed downside.
Related posts:
- The Pound declined against the Euro for a third day, as UK stock market losses increased allure of safe haven assets
- The Pound plunges against the majors after a slump in global slumps spurs demand for safe haven assets
- The Dollar pushes under 1.8200 against Sterling for the first time in 2 months ahead of the FOMC rate announcement on Thursday
- New Zealand Dollar Foreign Exchange Forecast – Sterling Creeping Higher…
- The dollar was broadly higher yesterday partly driven by a credit rating downgrade for Portugal
