US economy continues to grow steadily

US Dollar Highlights

EU exit set to dominate news for months

US economy continues to grow steadily

Sterling - US Dollar (GBPUSD) FX Technical Analysis

After a brief rally towards the end of January, Sterling has continued its move lower in February. The Pound has been hammered from a high of 1.4600 towards the 7 year low of 1.3850. Interest rate expectations have been driving markets of late and traders continued to pare back the chances of a hike from the Bank of England after policy makers cut growth and inflation forecasts in February's eagerly awaited inflation report. The bank left rates on hold in a unanimous decision as lone hawk Mccafferty dropped his call for a rise in interest rates. They also stated that since the November report, global output and trade growth have slowed and that the latest data would suggest a softer picture for UK activity than previously assumed. Although Mr Carney stated that negative rates had not been discussed and that the next move in rates would certainly be higher, a few analysts have now put rate hikes in the UK off the table until the end of the decade.

UK prime minster David Cameron finally announced a date for a referendum on whether or not the United Kingdom should remain part of the European Union and traders began to price in the chances of a possible "Brexit." The vote will take place on 23rd June and at present those voting to leave have the upper hand. Some estimates predict that the Pound could lose as much as 15-20% in the event of UK deciding to leave. London Mayor Boris Johnson has joined the leave campaign which only added to pressure being heaped on the Pound. While Mr Cameron has stated that it would be the "gamble of the century" if we were to leave, the EU traders certainly thinks that it is becoming more of a probability and the Pound will continue to suffer during this period of uncertainty. Expect this subject to dominate commentaries over the next few months.

Over in the United States, the US economy continues to grow steadily on a par with expectations from the Federal Reserve as inflation is on the rise and the unemployment rate continues to decline. The divergence between the US and the rest of the major economies continue to diverge. One can see the Dollar continuing to strengthen and the Pound as a consequence may dip back toward the 30 year lows.

UK purchasing managers’ indices and Non- Farm payrolls from the states will be the early focus however data may be left on the margins as traders continue to be guided by rhetoric from policy makers. For now one would expect any rallies in the Pound to be very limited.

Buyers

It looks awful for Dollar buyers right now as we sit just above the 30 year low. Although it does look oversold at current levels any rallies may be limited to 1.4200 in the short term. I would suggest looking no higher than that for the time being. For now the trend is lower and there is no point in fighting it.

Sellers

The trend continues and it looks like it may even head lower! A move above 1.4200 would suggest some consolidation is due. Unless that breaks the market could test 1.3500 in the short term.