GBP/USD Forecast: Five reasons for the pound's plunge, why there is no end in sight
Premium|Take advantage of 50% OFF on your first month.
Start your subscription and get access to all our original articles.
You have reached your limit of 5 free articles for this month.
Get Premium without limits for only $9.99 for the first month
Access all our articles, insights, and analysts.
UNLOCK OFFER- GBP/USD has dropped to the lowest since January amid higher US yields.
- Britain's petrol shortages are weighing on the pound.
- Several Brexit issues are adding to sterling's pain.
- Fears that the US would hit its debt ceiling boost the dollar.
- The four-hour chart is painting a bearish picture.
No Time To Die – the title of the new James Bond movie is relevant for Brexit, which tends to come out from the woodwork in the worst moment. Issues related to Britain's exit from the EU have been the latest to hit GBP/USD, joining a long list that is likely to continue pushing the pair lower.
Here are five reasons for the downfall:
1) Higher US yields: It took markets a few days to react, but the Federal Reserve's signal of tapering its bond-buying scheme has triggered a sell-off in bonds. The result is higher returns on American debt, pushing the dollar higher. Moreover, the move also weighs on tech stocks, thus send safe-haven flows to the dollar. The ease in bond yields hardly helped cable, opening the door to further falls.
2) No fuel today: The British army is on standby to deliver petrol to stations as a shortage of lorry drivers keeps some pumps dry. Calls by the government to avoid panic-stocking have only resulted in the opposite – long lines to fill as much fuel as possible. Transport issues could derail the economy. It will take a few more days to resolve the issue.
3) Brexit: The UK and France are fighting over fish once again. It is unclear how many boats would be given licenses to trawl the English Channel, echoing a similar standoff near Jersey several months ago. While fishing is a minuscule sector, tensions around it contribute to lack of progress around the Northern Irish protocol. It is also essential to note that the lack of lorry drivers is also Brexit-related. Things will likely get worse before improving.
4) US default? October 18 is the date that the US would hit its debt limit and could potentially miss payments to bondholders. While such a move has little chances, the ongoing row between Democrats and Repbulicans in Congress is worrying markets. Moreover, Demos are suffering infighting on the $3.5 trillion expenditure package pushed by the White House. Last-minute deals are likely, but probably not on Wednesday.
5) Still not oversold
The Relative Strength Index on the four-hour chart is still above 20, thus outside levels that proved to trigger a bounce in the past. Pound/dollar continues trading below the 50, 100 and 200 Simple Moving Averages and suffers from downside momentum.
Bears are in control. and the bottom has not been reached.
The daily low of 1.35 is the first level to watch. It is followed by 1.3430 and 1.330, levels last seen in the winter.
Some resistance is at 1.3570, a low point from earlier this year, and then by 1.36, the broken double-bottom. Further above, 1.3695 is eyed.
- GBP/USD has dropped to the lowest since January amid higher US yields.
- Britain's petrol shortages are weighing on the pound.
- Several Brexit issues are adding to sterling's pain.
- Fears that the US would hit its debt ceiling boost the dollar.
- The four-hour chart is painting a bearish picture.
No Time To Die – the title of the new James Bond movie is relevant for Brexit, which tends to come out from the woodwork in the worst moment. Issues related to Britain's exit from the EU have been the latest to hit GBP/USD, joining a long list that is likely to continue pushing the pair lower.
Here are five reasons for the downfall:
1) Higher US yields: It took markets a few days to react, but the Federal Reserve's signal of tapering its bond-buying scheme has triggered a sell-off in bonds. The result is higher returns on American debt, pushing the dollar higher. Moreover, the move also weighs on tech stocks, thus send safe-haven flows to the dollar. The ease in bond yields hardly helped cable, opening the door to further falls.
2) No fuel today: The British army is on standby to deliver petrol to stations as a shortage of lorry drivers keeps some pumps dry. Calls by the government to avoid panic-stocking have only resulted in the opposite – long lines to fill as much fuel as possible. Transport issues could derail the economy. It will take a few more days to resolve the issue.
3) Brexit: The UK and France are fighting over fish once again. It is unclear how many boats would be given licenses to trawl the English Channel, echoing a similar standoff near Jersey several months ago. While fishing is a minuscule sector, tensions around it contribute to lack of progress around the Northern Irish protocol. It is also essential to note that the lack of lorry drivers is also Brexit-related. Things will likely get worse before improving.
4) US default? October 18 is the date that the US would hit its debt limit and could potentially miss payments to bondholders. While such a move has little chances, the ongoing row between Democrats and Repbulicans in Congress is worrying markets. Moreover, Demos are suffering infighting on the $3.5 trillion expenditure package pushed by the White House. Last-minute deals are likely, but probably not on Wednesday.
5) Still not oversold
The Relative Strength Index on the four-hour chart is still above 20, thus outside levels that proved to trigger a bounce in the past. Pound/dollar continues trading below the 50, 100 and 200 Simple Moving Averages and suffers from downside momentum.
Bears are in control. and the bottom has not been reached.
The daily low of 1.35 is the first level to watch. It is followed by 1.3430 and 1.330, levels last seen in the winter.
Some resistance is at 1.3570, a low point from earlier this year, and then by 1.36, the broken double-bottom. Further above, 1.3695 is eyed.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.