GBP/USD: Five reasons to expect sterling to fall back down
|"It's coming home" – that cheer to England's football team may be at the top of Brits' minds ahead of the final against Italy on Sunday. For GBP/USD, perhaps "it is coming down" would be more appropriate. Cable has run up to 1.38, taking advantage of a dollar breather – but there are five reasons to expect the pair to swing back down.
Yields
“The US dollar shrugged off the sharp drop in returns on American debt usually correlated with its strength. Now that Treasury yields have risen back above 1.30%, the greenback has room to rise.”
Delta a win-win for bears
“The highly transmissible Delta covid variant continues spreading rapidly in the UK, threatening the reopening – over 32,000 cases were reported on Thursday. While this strain is also pushing infections up in America, the safe-haven dollar can gain ground.”
Brexit
“The EU and the UK agreed on a ‘truce’ regarding the Northern Irish protocol during the summer. However, another issue has come back from the dead – Britain's divorce bill. Brussels wants some €6 billion more than London is willing to pay. That row is weighing on the pound.”
Weak British growth
“The UK reported an increase of only 0.8% in Gross Domestic Product in May, half the early expectations. While this is only a monthly rather than a quarterly report, a slower expansion does not bode well for sterling.”
Bearish charts
“Pound/dollar continues suffering from downside momentum and trades below the 50, 100 and 200 Simple Moving Averages on the four-hour chart. Moreover, the Relative Strength Index (RSI) is above 30, thus the pair is not oversold. Bears are in control.”
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