Pound Sterling Live on Friday 4 Oct: The Slide vs the Euro Continues Towards 1.18, but why has the pound weakened?
The British Pound Sterling (Currency:GBP) may not face any exciting data releases today but eye-brows are being raised as to the recent depth in the decline being witnessed against the Euro. The big question of the day is: Why has the British pound weakened? We consider the explanations and the technical levels and outlook for the UK currency.
Latest market rates:
- Pound Sterling / Euro Exchange Rate: 0.47 pct down @ 1.1808.
- Pound Sterling / Dollar Exchange Rate: 0.7 pct down @ 1.6030.
- Pound Sterling / Australian Dollar: 1 pct down @ 1.7027.
- Pound Sterling / New Zealand Dollar: 0.67 pct down @ 1.9355.
Keep in mind that these are spot quotes. Your bank will subtract a spread at their discretion when delivering retail foreign exchange. Be aware that an independent FX provider will guarantee to undercut your bank's quote, thereby delivering you more currency. Find out more here.
NEXT WEEK in STERLING LAND
Adam Chester at Lloyds Bank gives us a run-through on next week's sterling-relevant data:
"In the UK, the underling strength of economic data continues to show through, with the PMI indices (Sept) this week all modestly lower but Q3 averages sharply up on Q2. The PMIs suggest Q3 GDP growth of around 1%. This has buoyed the pound.
"However, led by external events, market rate expectations have pared back in recent weeks.
"Against this backdrop, we expect the Monetary Policy Committee to leave policy unchanged on Thursday. Recent comments from MPC members suggest no need for further stimulus and broad support for the forward guidance in place.
"If, as we expect, they follow last month’s practice, an accompanying statement is unlikely.
"On the data front, industrial output figures for August are expected to show a rebound and a narrower trade deficit is forecast - firming expectations of a strong Q3 GDP.
"The RICS housing survey will also draw interest, particularly with the start of the second phase of the ‘help to buy’ scheme brought forward to the coming week."
14:34: GBP at attractive selling levels, at top of 4-year trend line
Leander Dreyer at Jyske Bank is always a provider of great insights:
"The current level is testing the upper trend line of the four-year trend. If we look at the short-term trend (see the chart), then the level at 161.50 is decisive for a movement down towards 160. Seen in the big perspective, we assess that GBPUSD has reached a long-term attractive sales level."
14:06: Signals shift rapidly from Buy to Sell
Camilla Sutton at Scotiabank comments on the about-turn in fortunes for the UK currency vs US dollar:
"GBP is weak, down 0.6%, on limited news flow but some model and technical selling. Next week’s focus will be the BoE meeting (October 10th), but with no change expected to either the bank rate (0.5%), asset purchase target (£375bn) or forward guidance it is unlikely to dramatically shift the direction of GBP.
"Technicals for GBP have shifted rapidly from buy to sell with the MACD entering a sell signal today and spot having broken below several layers of support. The bears have clearly regained control. Support lies at last Friday’s open of 1.6041 followed by last week’s low of 1.5956; while resistance is at its recent high of 1.6260."
13:00: Euro / pound exchange rate reverting back to 8 month range
More from Nick Bate at Bank of America:
"EUR/GBP will revert back to the middle of its previous eight-month (0.84-0.88) trading range. We highlighted the upside risk to EUR/GBP, given excessively large positioning to the downside – this move is now underway as the currency pair shows signs of creating a base."
12:55: Bank of England unlikely to help GBP next week
Nick Bate at Bank of America Merrill Lynch Global Research on next week's Bank of England event:
"The BoE is widely expected to leave interest rates and QE on hold at 0.5% and £375bn, respectively, next week – this should have no immediate impact on GBP or UK market yields."
Bate believes the Bank of England will however have to act on raising the interest rate sooner than initially communicated:
"The ongoing strength of UK economic data in recent weeks has likely brought forward the time at which the unemployment rate falls to the BoE’s 7% forward guidance threshold, thus pulling forward market expectations of interest rate rises somewhat too."
12:53: UBS forecasting GBP to remain dominant vs EUR
For more on the UBS forecasts for a resilient GBP, please the article just published here.
11:08: Car sales booming
If this can't elicit a recovery in the British pound then nothing can!
OK, it is third-tier data in nature, but it is nevertheless confirmation that the UK consumer is turning increasingly bullish.
September saw a 5 year high being recorded for car sales in the UK.
More than 400,000 new cars were registered, an increase of 12.1% on the same period last year.
The Society of Motor Manufacturers and Traders (SMMT) said September was the most prosperous month since March 2008.
More than one in seven new cars registered in September was built in the UK.
10:51: UBS back the pound, euro rally to fade
UBS analyst Geoffrey Yu is today backing an under-pressure sterling:
"The market is not even close to pricing in the full extent of the UK’s sudden improvement in economic conditions.
"It is apparent that the cross (EUR/GBP) still needs to trade lower to price in the full extent of UK outperformance this year.
"We continue to target EURGBP at 0.84 in 3m with strong downside risk over the coming quarters, unless BoE pain thresholds are hit."
09:37: Warnings of further GBP falls
Simon Eastman at Currency Index has warned that sterling could drop quite a bit further:
"The pound already dropping across the board so currency buyers should expect further losses today especially with a void of any UK data.
"The trend seems to be to the downside and with such gains made in such a short space of time for the pound, we have been predicting this correction for some time, in another week we could be a cent or two lower against most of the majors."
08:29: Pound to euro exchange rate heads towards 1.18
Those who have fallen into the trap of believing backing the pound was a sure-fire winning strategy will be licking their wounds.
The pullback has come despite a strong UK services PMI reading. We credit the moves to a combination of good Eurozone data and profit-taking on the late summer GBP rally.
Below: Extend of GBP move over past 24 hours:
08:25: Trend higher for sterling about to be broken
Ipek Ozkardeskaya at Swissquote Research on the possibility of a technical shift in direction for the pound vs US dollar (aka Cable):
"Cable retreated to 1.6160 in New York and rallied down to 1.6139 as Europe walked in. The MACD 12, 26 day indicator turned zero; further downside will signal a trend reversal in the Cable. Option bids are seen at 1.6100, yet bets are mixed below."
08:11: Why has the British pound sterling fallen?
Lloyds Bank Research are honest in their assessment of why the British pound has turned weaker and point out the key levels to keep an eye on:
"GBP weakened yesterday in spite of a strong PMI Services number and a good recovery in the employment sub-component. There is no obvious reason for GBP to weaken, but the levels at 1.6250 in GBP/USD and in particular 0.8333 in EUR/GBP (1.20 in GBP/EUR) are proving significant resistance/support in the short term.
"The EUR/GBP level in particular is looking tough to break and there may now be scope for a move up to the 0.85 area before the downtrend is resumed, even though we remain more positive about GBP’s prospects than the EUR over the medium term."