- Cable dropped modestly on Friday, on the back of a stronger US dollar.
- It remains near the 2018 low, and on a weekly basis, is about to post the lowest close in a year.
The GBP/USD pair fell on Friday for the second day in a row, erasing Wednesday’s gains. It is about to end November on a weak note, near 2018 lows. The Brexit uncertainty continues to affect the pound, and it is likely to continue to do so over the next two weeks.
On Friday, the pair tested levels on top of 1.2800 but failed to hold on top and pulled back. During the US session, a stronger US dollar pushed the pair further to the downside. It bottomed at 1.2733, slightly above monthly lows and ahead of the closing, trades at 1.2740/45, 65 pips below the level it had a week ago.
The US dollar posted mix results across the board over the week. It was supported by US data and some risk aversion while on the negative side if suffered losses on Wednesday after Fed’s Powell mentioned that rates were “just above” the neutral level. The FOMC minutes the next day partially offset those comments.
For GBP/USD is the third consecutive weekly decline and could be the lowest close since June. A test of the 1.2700 area and the 2018 low at1.2660/70 seems likely sometime over the next days. A consolidation below that area, from a technical perspective, would signal more losses ahead. On the upside, a weekly close significantly on top of 1.3000, would be a positive development for the pound.
Week ahead
The week will start with the outcome of the G20 summit. In the US will be a busy week that includes important labor market data. On Wednesday, the ADP report and on Friday the Non-farm payroll. The most relevant event, however, after recent comments, is likely to be the testimony of Fed Chair Powell in Congress on Wednesday. The next FOMC meeting is December 18/19.
In the UK, economic indicators are likely to be offset by politics and Brexit. On Tuesday, the debate in the House of Commons on the deal will start on Tuesday. The vote will be December 11. It seems unlikely the deal will pass the first time according to analysts at Danske Bank as more than 400 MPs have said or hinted they will vote against the deal and it seems that PM Theresa May’s team is already planning to hold another vote later, perhaps after some new negotiations with the EU. “The problem is that the EU has clearly stated that it is not possible to change much in the deal, so any changes would be minor and the question is whether this is enough for the MPs to vote in favour of the deal. If the deal does not pass, it opens the way for a range of possible outcomes including a chance of both a second referendum and a snap election“, wrote Danske analysts.
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