British GBP/USD Exchange Rate: Fresh Declines now Possible
Our studies suggest GBP/USD could see further declines after breaking below a key trendline, although it has already almost met its first downside target.
The Pound to Dollar exchange rate has broken below a key trendline increasing expectations that it will go lower.
At the time of writing GBP/USD is quoted at 1.2397 having faded from last week's high at 1.2674.
The declines come as per our predictions published ahead of the new week where we called for a retracement in Sterling rates.
GBP/USD is currently trading just below the trendline at 1.2460 after recovering a little from post-break lows of 1.2378 which were only three points shy of our initial target at 1.2375.
The pair could break even lower, with a move below 1.2300 signaling support from the monthly pivot (PP) has been cleared allowing for a probable continuation down to the next target at 1.2200.
Monthly pivots are levels of support and resistance where the exchange rate often bounces or stalls as many traders use them as places to launch counter-trend trades.
This would then confirm a probable continuation down to the next target at 1.2200.
The TD Countdown indicator is indicating the November highs mark an exhaustion point, denoted by a “13 Count”.
Commerzbank’s technical analyst Karen Jones also believes the move up from October is “corrective” in nature rather than part of a ‘trend’, which is further evidence that it is likely to run out of steam and resume its downtrend again.
Alternatively, a resumption of the bullish uptrend is also possible, with a move above the 1.2674 highs providing confirmation of a move up to resistance at 1.2830.
Those with impending GBP into USD payments will have witnessed the best opportunity to transact in weeks slip.
A spot rate of 1.2393 suggests that international payments providers are offering a rate from between 1.1959 and 1.2281, depending on how competitive the provider is.
Lloyds Cut Forecasts for GBP/USD in 2017
Concerning coming months, analysts at Lloyds Bank have this week updated clients on their projections for Sterling-Dollar.
Lloyds expect the reorientation towards fiscal policy to stimulate growth in the US and, to a lesser extent, in the UK to support their respective currencies.
Since Donald Trump won the Presidency global markets have sat up and taken note of his campaign pledges to invest heavily in restoring the United States' creaking infrastructure.
Heavy tax cuts combined with generous increases in spending, if approved by Congress, could add some momentum to the country's already steady growth profile.
While similar plans are expected to be announced by the UK's Chancellor Hammond, they will certainly not be on a scale grand enough to warrant a rerating of the Pound.
"We have revised down GBP/USD slightly to 1.25 from 1.27 in mid-2017 and to 1.28 from 1.30 at end-2017," say Lloyds.
Furthermore, uncertainty around both the nature of the UK’s negotiations with the EU and the impact of the new US administration on the US economy suggest that GBP/USD will remain vulnerable to significant bouts of volatility over the coming year.
The strong performance of sterling over the past month saw GBP/USD recover back up to pre flash-crash levels, with the rally briefly extending above 1.26.
In part, the recovery has reflected the shift in BoE policy expectations - where another interest rate cut is expected market pricing now actually suggests the next move could be to raise interest rates.
Having kept interest rates unchanged at the November MPC meeting, the Bank noted that against a background of strong data, the previous guidance of a rate cut had also ‘expired’.
Meanwhile, further support to GBP came following the High Court ruling that Article 50 could not be triggered without a parliamentary vote and Donald Trump’s victory in the US election, both of which raised hopes of a less challenging outlook for the UK postBrexit.
