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GBP/USD hit a 6 week low and lost support after a series of worries hit Britain and as the US dollar strengthens across the board.

Cable already started the week with a Sunday gap, falling to 1.60, but later through the Asian session, it managed to recover and trade slightly higher. When European traders returned from the weekend, the pair fell, and dropped as low as 1.5958 before recovering some of it’s losses.

Why is the pound falling despite rising inflation?

  • London riots: a huge demonstration was held in the British capital over the weekend, protesting against the austerity measures. The scene turned violent. The British government is becoming unpopular.
  • Irish default risk: an Irish minister said he wants senior bondholders to share some losses of Irish banks. British banks have serious to exposure to Ireland, so Britain is at risk as well.
  • The British economy is struggling: even before the austerity measures, the UK was struggling. The economy contracted in Q4, and there are fresh fears for another negative quarter.
  • Hawkish American comments: Several members of the Federal Reserve have hinted, or more than hinted about stopping QE2 as planned. One member spoke of stopping the program earlier than expected, and another Plosser, even spoke about a rate hike.

GBP/USD Lines

Initial support is found at 1.5940, which was a bottom in February. Further support is at 1.5820. 1.60 now turns into resistance, and its followed by 1.6110.

For more lines and events moving the pound, see the GBP/USD Forecast.