- GBP/USD is currently trading at the lowest levels since 5th September down at 1.2823, having made a low of 1.2808 from a high of 1.2920 as Brexit enters overtime.
- The greenback has firmed to the highest levels since mid-August business and highest levels for 2018 amid investors stick to buying good old-fashioned economic data and Central Bank divergences.
The pound came under yet more selling pressure as the week goes by with heightened anxiousness surrounding Brexit. The UK brought the talks to a stand-still on 14 October when PM May failed to appease EU leaders with her Brexit plan that meant the EU will not convene again in November to discuss Brexit for a lack of progress on the Irish border conundrum – delaying the potential for a deal between the EU and the UK until the earliest time frame of between 13-14 December at the next scheduled EU summit.
However, the real worry is whether or not May will actually get a deal through the door, for the dynamics make it highly challenging and the best the Brexiteers can hope for, is a last-minute deal hard Brexit deal.
“PM May survived this week, but the threat of a leadership challenge will hang above her head until March 2019, particularly is she further softens her Brexit stance,”
analysts at Rabobank argued.
Meanwhile, the US data continues to impress and the dollar catches a bid towards the highest levels for the year. The US headline Durable Goods Orders expanded more than expected 0.8% MoM in September, while Core Orders rose 0.1% inter-month, below consensus. Other data was showing that the Goods Trade deficit was widening to $76.04 billion, while Initial Claims was climbing at a weekly 215K and Pending Home Sales expanded at a monthly 0.5% during last month.
US GDP comes as the next key data
We now look for the next major data from the US in the form of real GDP which, in the opinion of analyst at ING Bank, is set to be a very solid GDP report and will leave the US well on course to record 3% growth for the year as a whole, which the analysts say would be the strongest outcome since 2005:
“We see no real reason to expect a collapse in growth anytime soon with 4Q GDP supported additionally by the rebuild/clean-up operations following the recent Hurricanes Florence and Michael.
As we move into 2019, we are likely to see some moderation in growth. The support from the fiscal stimulus will gradually fade while the lagged effects of rising interest rates and a stronger dollar will feel more of a headwind.”
GBP/USD levels
Analysts at Commerzbank noted that GBP/USD has eroded its early October low at 1.2924 and the 1.2905 61.8% retracement and remains on the defensive: “The market recently failed at 1.3298, the September high and 1.3363, the July high and attention is now on the 1.2924/05 October low and Fibonacci retracement. The move below 1.2905 has introduced scope for a slide back to the 78.6% retracement at 1.2798/85 and the 6 the September low, we would allow for this to hold the initial test. This is seen as the last defence for the 1.2662 August low.”
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