GBP/USD: a lot to consider, Brexit, rates, Fed, US tax plan?

  • BoE forecasts to keep a lid on the pound?
  • When will the next rate rise be for the pound?
  • Brexit developments to hinder the pounds progress?
  • Watching the Fed and US tax plan as a guide to the dollar's trajectory and subsequent affect on GBP/USD.

With the BoE meeting on November 2 and Carney's November Inflation Report out of the way, sterling's fate will likely be driven by politics from here on. Currently, GBP/USD is trading at 1.3138, up 0.15% on the day, having posted a daily high at 1.3155 and low at 1.3085.

What is concerning markets is how Brexit uncertainties will weigh on the investment growth in the UK economy that could otherwise counter any prolonged periods of low productivity growth in the since the financial crisis. 

"In his presentation of the November Inflation Report last week, BoE Governor Carney forecast UK GDP growing “modestly over the next few years at rate just above its reduced rate of potential”," explained analysts at Rabobank, adding, however, that " higher BoE interest rates on the back of a rise in price pressures have the potential to add some support to the pound," and, " In the meantime uncertainty is likely to weigh on UK investment and growth potential.  The implication is that GBP has the potential to slip further on a 12 mth view before snapping back to current levels around March 2019."

Senate tax bill to delay corporate tax cut until 2019, dollar to deflate?

However, we must keep a close eye on Brexit developments as well as the Fed and Trump's tax plan delays that have been confirmed today to have been set back until 2019, which is a weight on the dollar, already down -0.35% on the session so far in NY.

GBP/USD levels

Analysts at Commerzbank explained that GBP/USD has struggled to clear the 20 and 55-day moving average at 1.3180/1.3211 and is back under pressure with attention focussed on the 1.3058/22 support line and 2016-2017 uptrend.

"It represents the breakdown point to 1.2830/1.2774, the 38.2% retracement and August low, and the 1.2575 50% retracement. The recent October high and the 50% retracement at 1.3338/43 continue to act as a short-term ceiling for the market. Near-term we are unable to rule out a deeper retracement to 1.3250 ahead of further failure," the analysts at Commerzbank argue.

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