The pound is under pressure once again, falling to the lows seen last week, just before the BOE sent it back up. Cable dropped as low as 1.3110, less than 10 pips above last week’s trough. The bounce has not sent it too far. All in all, it remains around 250 pips below the post-Brexit highs.
This weakness comes from home and also from abroad. Here are 3 reasons for the fall:
- Hammond passes the ball to Carney’s court: The new Chancellor of the Exchequer Phillip Hammond, hardly a week in office, has suggested that the first loosening should come from the BOE. It seemed that one of the reasons the BOE did not cut last week was in order to give the government time. And then, after a few weeks, the BOE would have a clearer picture in terms of May’s government’s plans. Well, for now, the ball is firmly in the BOE’s court. With higher prospects of a rate cut or more QE, the pound is naturally losing ground.
- IMF slashes forecasts: The International Monetary Fund published updated forecasts and growth has been slashed. Brexit is to blame also here. For the whole world it means 0.1% less growth for both 2016 and 2017. For the UK, it is 1.7% instead of 1.9% for this year and a big cut from 2.2% to 1.3% for 2017. The IMF tends to be over-optimistic, so this big cut for next year also has a negative impact.
- Good US data: US housing starts and building permits both beat expectations. No, these are not top-tier figures, but they add fuel to the fire. Friday’s retail sales beat was more significant. Nevertheless, this strengthens the already strengthening greenback and the pound is no exception.
Here is how it looks on the 1 hour chart:
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