Home Comeback of the Pound (2)

The British Pound made a huge comeback and is winning all across the board. Today, the Pound isn’t left behind. Stopping the QE program is one reason, but not the only one. What else is behind this comeback? Why makes this move meaningfully? Here are some answers:

Updated 11:42 GMT.

GBP/USD made 550 pips in two days. That’s a huge comeback. After tumbling down to the support line of 1.5720 on Tuesday morning, it began retracing back up. During Wednesday, it managed to rise above 1.60.

The big move came today: GBP/USD broke above the resistance line of 1.6120, which was a double top. The Pound bounced off this line twice in recent weeks. The strong and convincing move sent GBP/USD to 1.6280 at the time of writing.

Reasons for the surge

The main reason for today’s move is a speculation that the Bank of England will stop the Quantitative Easing program – stop purchasing assets and devaluing the Pound. This contradicts the Pound-bearish statements made by the BoE last week. Bloomberg reports:

…the Financial Times cited Bank of England Markets Director Paul Fisher as saying policy makers would be more likely to pause asset purchases, giving themselves the option of “doing more later,” rather than stopping them.

According to an analyst quoted in the article, this will cause the Pound bears to “cut and run”.

One technical reason is touching the support line. This downfall triggered buy orders that  awaited  the Pound at this point and sent GBP/USD up.

Another reason is the employment figures: they were published yesterday, but the markets took the time to fully digest them. The Unemployment Rate stopped rising and stayed at 7.9%. Economists were expecting 8%. This late figure related to August, but is heavily quoted by the media.

The second employment figure is Claimant Count Change, which relates to September. This fresh data showed a smaller than expected rise in the number of people wanting unemployment related benefits. Instead of 25.1K, th number was 20.8K. This was the lowest number in 14 months.

Why this comeback is important

Such a strong move hasn’t been seen in the Pound for a long time. Apart from GBP/USD, also the Pound crosses are making strong moves: EUR/GBP is falling and GBP/JPY is rising, breaking the recent trends. A strong move like this hasn’t been seen since April when a similar comeback of the Pound occurred.

GBP/USD made the second wave of this surge while the dollar was strengthening against other currencies. This morning saw a weakening of the Euro, Swissy, Aussie and all the other against the Yen. This dollar strength didn’t affect the British Pound which continues to rise.

The next hurdle is the magical 1.6660 line. GBP/USD will probably rest before approaching this area.

Further reading:

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.