GBP/USD - Will Merkel's victory strengthen the British Pound?

GBP/USD dropped to a low of 1.3450 on Friday after ratings agency Moody's downgraded the UK to an Aa2 rating from Aa1; having removed its top-notch AAA rating in 2013.

Downing Street said the Moody's verdict is "outdated". Moody's defended the move by stating that May's speech in Florence did not change the bigger picture - Brexit is damaging the economy and the debt reduction plans are off course. The currency pair did recover to 1.3530 [1-hour 100-MA] in Asia.

Brexit talks are due to restart Monday morning

UK’s chief negotiator David Davis and his team will travel to Brussels today. Merkel’s re-election is not a big positive for the British Pound as Brexit was not an important election issue in Germany. Still, Merkel's loss would have been a huge blow for the EU and Brexit.

Focus on FPC Statement

The Financial Policy Committee [FPC] statement due for release at 9:30GMT may express concerns regarding the growing credit boom. A cautious tone may boost BoE rate hike bets and strengthen the bid tone around the British Pound.

Sterling traders also need to keep an eye on the gilts as the yields might drop in response to Moody's downgrade. That would be bearish for the Pound.

GBP/USD Technical Outlook

FXStreet Chief Analyst Valeria Bednarik writes-

" Having  rallied for nearly a month and after achieving a fresh 2017 tops at 1.3653, the GBP/USD pair seems now poised to correct lower, given that in the daily chart, technical indicators have begun correcting overbought conditions, although the pair bottomed for the week at 1.3449, the 23.6% retracement of its latest bullish run, the level to break to confirm additional declines ahead. In the 4 hours chart, the price settled below a horizontal 20 SMA, but technical have entered bearish territory with nice downward slopes, supporting the case for a downward move in the case of an extension below the mentioned Fibonacci support."