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Fundamentals and Technicals Support Rally for British Pounds

Fri, Nov 28 2008, 15:34 GMT
by Forex Hound Analysis Team

ForexHound.com


This week the main trend in the British Pounds turned up for the first time since August 5. This is a sign that investor confidence is returning to the currency. On the futures side, the Commodity Futures Trading Commission Commitment of Trades Report is also showing signs that large trader interest is returning to the long side of this market.

Besides the news that consumer confidence in the U.K. fell less than forecast, gains in the stock market this week because of increased demand for higher yielding assets has helped the British Pound to one of its best weekly percentage gains in almost eight years. In addition to the lowering of the Value Added Tax this week in an effort to stimulate the U.K. economy, traders are also anticipating another rate cut by the Bank of England of up to 100 basis points at its next meeting on December 4. Investors are beginning to believe that the moves by the Bank of England have the British economy on a pace to accelerate its recovery from the recession gripping the country. The main factor holding the British Pound back from a substantial rally is the inability of the recent actions by the Bank of England to stimulate lending among the banks. The commitment to the long side by the GBP USD bulls is a sign that investors are anticipating a loosening in the credit markets. Look for the Bank of England’s actions to provide support to this pair while waiting for looser lending practices to trigger a breakout to the upside.


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