British Pound Declines for a Third Day

Pound sterling is experiencing a continuous downfall that started more than a month ago in earlier November. GBP/USD has lost more 5.8% since November 9 — when it reached its maximum value in many years.

After gaining about 0.3% this Monday, GBP/USD showed the same-sized fall on Tuesday after CPI data was published reporting a lower than expected prices growth. Wednesday was even more bearish for GBP/USD — more than 0.8% decline. Today the situation remains the same — pounds are sold for dollars — GBP/USD fell by more than 0.4% already.

The main bearish driver for GBP/USD (and not only GBP/USD but for the other pound based pairs too — GBP/JPY, GBP/CHF, etc.) is the confidence of the market participants that the Bank of England will continue interest rate cuts in the next year. Cutting rates below 5% will trigger a massive closing on the pound based carry trade positions, since the rate difference won’t be so attractive anymore. Afraid of this hypothetic situations less risky traders prefer to move out of pound now, while it is still on its top, without waiting for the actual BoE decisions.

Breaking below the psychological support of 2 dollars per pound was very important movement. It is now justified to to expect the further falling of GBP/USD until it hits the weekly 100 EMA (exponential moving average) near 1.9500 level, before it can jump back to the 2.0000 or maybe a lower level.

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