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GBP/USD already 600 pips below the highs – 4 reasons

Pound/dollar had a speedy rise to 1.3660, above the initial post-Brexit range. It was fueled by the BOE’s talk of a rate hike in November, among other reasons.

But this speedy rise has proved to be one taken in a roller coaster. While the recent strength of the US dollar is behind some of the falls, the pound suffers from its own issues.

  1. A one-off hike?: Trusting Mark Carney’s words has always been tricky. There were a few false hawkish signals from the Governor. This time, it seems that Carney and co. are really going to raise rates in November. However, it could be only a one-off: reversing the hike from August 2016. And that’s it. If so, a lot of the hot air is gone.
  2. Brexit talks: Theresa May’s Florence speech improved the atmosphere, but similar to the BOE’s bullish talk, it faded away as well. Perhaps May did not offer enough. Or perhaps the EU was going to say that there has not been sufficient progress in any case. It seems that the EU is treating the UK like Greece.
  3. Internal politics: The knives seem to be out for Theresa May. It isn’t new: her failure to win an absolute majority in the June 8th elections had already put her leadership in peril. The Conservative Party conference was an opportunity to express the  discontent. Her flops during the keynote speech have triggered further talk of her ousting. However, if she goes, it is unclear who will take her seat at this point. PM Boris Johnson is something that markets are not bracing for, nor PM Jeremy Corbyn.
  4. Unimpressive data: The latest figures from the UK are not that great. 2017 is a year when Brexit begins biting: wage rises are falling behind inflation, GDP is slowing down and forward-looking indices are not going anywhere fast. The construction sector seems to be in contraction.

GBP/USD reached a new low of 1.3063. This is just 6 pips short of a 600 pip plunge from the highs of 1.3657. The next line of support is at 1.3040, followed by 1.2975. Resistance is at 1.3110.

More:  GBP: Market Overly Optimistic On BoE; Current Situation Unsustainable For GBP – BofAML

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.