GBP/USD at 5 Month Low – 5 Reasons

The British pound is losing ground quickly and is now at a 5 month low. Here are 5 reasons for this fall. Will the pair break lower or bounce from here?

GBP/USD fell as low as 1.5937, just one pip above the  1.5936 trough recorded at the end of March. Cable has last seen these levels at the end of January. Further support appears at 1.5850, followed by 1.5720 and 1.5650. Some resistance at the round 1.60, followed by 1.6050 and 1.6110.

5 Reasons

1. No Rate Hike in a year: The recent meeting minutes have shown that the number of supporters for a rate hike is lower: only two. This has to do with the replacement of one hawkish member, Andrew Sentance, but also with the dire economic figures from Britain. The idea of QE2 in Britain is also on the table. The market now expects a rate hike on in August 2012.
2. Royal Wedding hangover: Consumers were relatively content towards the Royal Wedding at the end of April. They are now back to doom and gloom, as seen in retail sales, consumer confidence, and also unemployment, which is on the rise.
3. Greek crisis: The ongoing complications in Greece, including the fresh discovery that even the newly constructed austerity plan has a “hole” of 3.5 billion euros, is also indirectly weighing on the pound.
4. No QE3 in the US: Bernanke made it clear that QE3 is not on the agenda, and that the situation has improved in the US. This helps the dollar.
5. Oil collapsing: Obama decided to release oil from strategic reserves. This sends oil down and the dollar higher across the board. The pound also suffers.

Will it continue lower from here?

For more about cable, see the British pound forecast.

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