Home Selling England by the pound – GBP/USD on the defensive

Selling England by the pound – GBP/USD on the defensive

The Bernanke effect last Wednesday pushed the dollar weaker and subsequently Sterling was a major beneficiary of Ben Bernanke’s remarks about the US economy and strengthened. Federal Reserve Chairman Ben Bernanke sought to reassure markets  on Wednesday  that highly accommodative monetary policy is set to remain in place for the foreseeable future.

Speaking at a conference, just a few hours after minutes of the Fed’s June policy meeting showed officials deeply divided over when to start unwinding the bond-buying program, Bernanke reiterated that until economic data form a strong case for a pullback from stimulus, policy is not set to change. This news gave a massive boost to global equities and the US dollar fell sharply, commodity prices were pushed higher with copper, gold and silver making strong gains on the news.

Guest post by Ronnie Chopra of  Tradenext.

Sterling which was trading around 1.48 USD before Bernanke’s comments was trading at 1.52 USD by the end of the week. This morning, Sterling has weakened and is trading just below 1.51 USD and looks set to fall below 1.50 USD again as the week progresses as traders realise last week’s dollar sell-off due to Bernanke’s statement last week was a correction rather than a major re-assessment of future Fed policy. The 200 point reaction in many dollar pairs was testament to thin liquidity in the markets which occurs in the summer months.

With the new governor of the Bank of England, Mark Carney keen on quantitative easing (QE) to buy gilts, this will continue to put downward pressure on Sterling.  Carney wants the UK economy to move from a consumer based one to an export oriented one -again putting further pressure on the pound.

There is important UK data out for release this week which will be influential on Sterling’s direction. Any data that disappoints will push Sterling much lower after last week’s strong showing.

The US economy is showing signs of growth and is in a much better position than the UK and this should support the greenback. Add the geo-political risks in the Middle East and the civil unrest in Brazil and Turkey will mean that the US dollar will be in demand for its safe-haven status. Continue to buy the USD on any weakness against Sterling.

Further reading:  Bernanke’s comments undermine the dollar; What to expect this week? Weekly Overview (8-12 July 2013)

Ronnie Chopra

Ronnie Chopra

Ronnie has over 15 years’ experience working with financial products and started his financial career at CMC Markets in 1999 and in 2001 he joined Merrill Lynch Investment Managers (now BlackRock - the world's largest asset manager) and worked there for over four years as a RFP analyst. Since 2005, he has worked in a number of brokerage firms as a CFD and FX sales trader and market strategist. A seasoned commentator, Ronnie has appeared many times on global business channels (BBC, Bloomberg, CNBC, CNN and SKY) to discuss topics concerning the financial markets. He has written numerous business-related articles and regularly lectures.