GBP Remains Under Pressure, But Buy Dips Below 1.6 Say Lloyds Bank
The British pound remained under pressure against the Euro and US dollar on Wednesday. The selling of GBP continued with little satisfactory explanation; indeed there was much talk of manipulation by speculators. Either way; GBP will only likely benefit from fundamental drivers once the PMI releases start coming through once again, starting on Friday.
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Rates as of last update
- The pound euro exchange rate is 0.03 pct down on last night's close. GBP/EUR is at 1.1670.
- The pound dollar exchange rate is 0.16 pct higher at 1.6072.
- The pound Australian dollar rate is 0.08 pct lower at 1.6917.
- The pound New Zealand dollar rate is 0.15 pct higher at 1.965.
NB: The above are spot market quotes; your bank will affix a spread to the figures at their own discretion. However, an independent retail FX provider will guarantee to undercut the rates offered by your bank, thus delivering up to 5% more FX, please find out more here.
6:40: Inflation to be forecasted lower at Bank of England, pound to weaken
Ahead of November's Bank of England MPC decision and November Quarterly Inflation Report we hear from Nick Bate at Bank of America Merrill Lynch Global Research who says:
"With GDP running at a circa 3% annualized pace in recent months, we expect the BoE to leave interest rates and QE on hold next week.
"The BoE could also lower its CPI forecast in the November Inflation Report - adding to the more comfortable backdrop.
"Yet, we see upside risks to EUR/GBP building amid elevated UK growth expectations and waning relative equity market support."
Visit us tomorrow for our full coverage of the report.
15:44: GBP bounce unlikely to get far
Confidence in the UK currency is certainly waning amongst those commentators we follow.
Matt Weller at GFT says today's bounce in GBP/USD won't get far:
"Like its mainland cousin, the GBP/USD generally fell yesterday before stabilizing and starting to bounce back a bit in today’s early European trade. From a technical view, an extended bounce could well encounter resistance at 1.6115, the previous support level from last week and earlier this week. Meanwhile, key support sits below current rates at the convergence of the central Monthly Pivot Point and the 1.6000 round handle."
15:29: Alert! Jane Austen saga brewing
The British pound bank notes are due for a redesign, incase you missed it.
The author of the book 'The Real Jane Austen' has spotted a chance for publicity complaining that the image of Austen chosen to adorn the new £10 note is a rubbish choice.
"I can't believe they have gone for such a saccharine picture. Jane Austen was a supreme social satirist, and some of her writing was quite dark, but they've chosen a picture that makes her look a really cosy, middle-class writer," says Paula Byrne.
Which image would you chose?
13:49: Situation improving for GBP
The start of the afternoon session in London has seen GBP being picked up.
13:44: Month end could see USD selling
It's month-end and asset managers will need to rebalance their currency hedges, placing additional pressure on FX markets.
The USD is predicted to come under selling pressure this month by Barclays. Analyst Aroop Chatterjee says:
"A softening in US economic data leading into the government shutdown, coupled with increased worries that the political impasse may restrain prospects ahead, has led the market and our economists to push back expectations of Fed tapering to March 2014. This has broadly supported the swath of global asset markets as investors have reached for risk premium in both equity and bond markets.
"The relatively large movements in US markets versus others suggests that investors are likely to be underhedged on their USD exposures. The model output shows a strong USD sell signal across the board."
12:18: REMEMBER - the big event is at 18:00
The US Fed's Monetary Policy Statement is due at 18:00 today - this will likely give currency markets a fresh shot of impetus.
The monthly MBS and Treasury Purchases expected to remain unchanged at the total of USD 85bn on monthly basis. The policy rate is expected to remain unchanged at the historical low of 0.25% and the Fed will perhaps not start tapering its bond purchases given the weakness in the latest jobs data and the unresolved budget turmoil which had resulted in 16-day government shutdown in October.
"Yet the accompanying statement is crucial today. Dovish expectations on Fed being already broadly priced-in, we suspect that any “less dovish” comments may trigger correction given the oversold conditions in USD," says Ipek Ozkardeskaya at Swissquote Research.
11:30: Silly season for the British pound
I am enjoying Moneycorp's commentary at present. See the first comment of the day, and now see below:
"There is a dichotomy to the way investors view the pound at the moment. On one hand there is suspicion that recent figures overstate the true economic situation; higher house prices and output are believed to mask weak productivity and real earnings (Bloomberg headline "Pound slides for a third day amid bets economy can't sustain gains).
"On the other hand there remains an underlying bullishness about sterling even if it is insufficient to stimulate new buying (Bloomberg headline "Pound forecasts soar as BoE's Carney signals shift").
"Investors' hot-and-cold attitude to the pound is mirrored elsewhere. On Thursday, Friday and Monday the yen was successively, the worst, best and worst performer among the major currencies."
So it is a bit of a 'silly season' for traders of GBP. Today's FOMC outcome and Friday's Manufacturing PMI should give us some solid direction for GBP.
11:28: Beware further gains by the Euro
"The uptrend in EURGBP solidifies given the trend divergence between EUR and GBP. With trend and momentum indicators firmly positive, we remain buyers above 0.8500 (Sep-Oct uptrend bottom). First set of offers lies pre-0.8600 and the bets are mixed at 0.8530/50 area. Stops are seen below 0.8500." - Ipek Ozkardeskaya at Swissquote Research.
10:40: Is this just a short-term reversal?
Echoing the view below by Lloyds that these dips offer buying opportunities; below is comment from Luc Luyet at MIG Bank suggesting support could be found as low as 1.5886:
"GBP/USD has broken its support at 1.6116, validating a short-term bearish reversal pattern. The break of the support at 1.6060 confirms the
short-term implied downside risk at 1.5975. A resistance is given by 1.6119 (intraday high, see also the declining trendline).
"In the medium-term, monitor the horizontal range defined by the support at 1.5886 and the resistance at 1.6260."
09:15: Lloyds see these levels as a buying opportunity
Lloyds Bank Research tell us that a dip below 1.6 in the GBP/USD should be considered a buying opportunity:
"GBP/USD continued to struggle yesterday against a background of general USD strength, but the dip to the low 1.60s should be seen as a short term buying opportunity. While UK yields have edged lower over the last week, supporting the decline in GBP/USD, we don’t feel that the UK data has justified any loss of confidence in the UK recovery.
"Today’s Lloyds Business Barometer will probably not garner much attention, but this has been a good leading indicator of the UK recovery and has been at very strong levels in recent months. Even a modest dip would be consistent with strong UK growth continuing into next year."
09:00: The mystery of the sterling sell-off
We start off the day with where we left off yesterday's commentary.
An interesting comment from Moneycorp on the mysterious dynamics behind the GBP selloff:
"The pound took an unexpected and unusual hit early this morning in the Far East. At around midnight it slumped by three quarters of a cent against the dollar and the knock-on effect took it lower cross the board.
"There was nothing on the newswires to provoke the move. The assumption is that it was the work of an adventurer who thought that by taking Cable below $1.61 he ( and you can bet it was a he) could provoke a technical selloff."