Forecast: Fundamentals Aren’t Favorable for Pound

The Great Britain pound fell during the previous week, but rose at the beginning of this week. Could it be a sign that the sterling is going to reverse its bearish trend? The currently available data shows that such case is unlikely.

Previously, gains of the pound were mainly by investors fleeing from the euro and the problems of the European Union to the UK currency that was perceived to be somewhat safer. But the macroeconomic data continuously proves that Britain’s economy has its own problems and isn’t much better that the economy of the continental Europe.

Growth of the UK economy slowed to 0.2 percent in the second quarter of the year from the first quarter, while growth in the first quarter from the previous three months was 0.5 percent. The figures were even worse on year-over-year basis as expansion in the second quarter was by 0.7 percent, while increase in the first quarter was by 1.6 percent.

This week isn’t great for the pound either. The GFK Consumer Confidence Index is expected to slightly go down from -30 to -32. Views on the housing sector are mixed. While the Halifax House Price Index is expected to show monthly increase of 0.5 percent in August, compared to 0.3 percent in July, analysts predict Nationwide HPI will show slower growth of 0.1 percent this month, down from 0.2 percent in the previous month.

All in all, this week doesn’t look very favorable for the UK currency. In case of a rally, GBP/USD would find strong resistance at 1.6550 level. That was the level of resistance in May and more recently in July. The currency can find support at 1.6250 –1.6300 level as it provided strong support in the second part of July and was the recent base for the current rally. Below that the area somewhat above 1.6100 as that was the floor for the currency, when it has broke to the downside at the beginning of August.

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