The British pound continues suffering and drops below the critical support line of 1.4050, a double bottom in recent weeks. If confirmed, the pair has potential for a free fall, perhaps all the way to challenge the 6 year lows of 1.3840.
Here are 3 reasons for the fall of the pound. These are all political events, as UK fundamentals have actually been positive.
- Panama Papers: UK PM David Cameron is the most senior politician implicated in the leaks from the Panama based law firm that handles offshore accounts. He already issued 4 statements about the topic but they failed to convince that the estate of his late father which was directly involved has nothing to do with him.
- Tata Steel: The existential crisis of the British steel industry is taking a political toll as well. It adds to the anti-globalization and also anti-EU sentiment.
- Brexit fears: The June 23rd referendum is getting closer and uncertainty is higher. Since the Brussels bombings, there seems to be a rising chance of this due to the usual blame of immigrants. The aforementioned political uncertainty weighs as well.
We are seeing a stronger USD against the pound as we are seeing the same across the board: the dollar is gaining ground ahead of the FOMC minutes. The pound is also losing to the Japanese yen, with the latter enjoying safe haven flows. However, sterling is also suffering against the euro, which has its own problems and basically every other currency.
Here is how it looks on the chart:
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