GBP/USD: "Stability Masks Weak Fundamentals" say ING

The Pound to Dollar exchange rate (GBP/USD) remains unable to find buyers above, or just below the 1.30 handle.

The pair is quoted at 1.2994 at the time of writing and the outlook for the GBP/USD exchange rate is undoubtedly negative despite the consolidation we are seeing.

“Don’t be fooled, GBP/USD stability masks bearish £ dynamics,” says analyst Viraj Patel at ING Bank N.V.

The Pound has softened amidst signs that the Conservative’s commanding lead in the polling for the general elections has been cut.

And even if the Conservatives see their lead grow again, it might not necessarily boost Sterling. Indeed, data confirms that the Pound tends to fall following large Conservative landslides.

“A narrative that GBP will react positively to a landslide Tory win is too easy now – especially after the recent short positioning adjustment,” says Patel.

ING see cite greater two-way risks to GBP crosses; while GBP/USD remains range bound (due to a soft $), "GBP has been a laggard within the European FX space over May – highlighting its bearish fundamentals."

Some analysts who have been watching the charts are also pessimistic.

“Unless GBP values can directly hurdle 1.3500 much of the available upside potential here appears to have been realised already in recent weeks,” says analyst Lucy Lillicrap with foreign exchange brokers AFEX in London.

Lillicrap says that the market can still “stair-case” its way somewhat higher in coming sessions but resistance waiting at 1.3200 suggests this foray beyond even 1.3000 may well prove short-lived.

“A sell-off back through 1.2840/50 support is needed to signal an interim top has already been posted but if seen 1.2550/1.2400 should come back into focus next (en-route 1.2000 levels again eventually). Meanwhile localised selling pressure also exists around 1.3050,” says Lillicrap.

At the time of writing those with international payment requirements are seeing their banks offer payment rates in the region of 1.2531 and 1.2621. However, independent providers are seen offering higher towards 1.2868. More details here.

1.35 Still Possible

Of late, the British Pound has been on an appreciating trend against the US Dollar and was seen topping just above 1.30.

The Pound’s undervaluation, by historical standards, will certainly have helped the GBP/USD rise, as will have the overwhelmingly negative positioning against the currency on global markets.

The relative weakness in the Dollar has also helped GBP/USD and last week’s price action saw it push back through the $1.30 level for the first time since last September.

These forces could still play out a little further before the Pound reverts lower in line with the bearish fundamentals ING's Patel mentions above.

“There is still scope for further upside in the near term. The long-term downtrend currently stands at approximately 1.35 and it is still possible that we could see that tested before the dollar begins to reassert itself,” says Bill McNamara, a technical analyst with brokers Charles Stanley.

But, “further near-term upside will likely require a catalyst, in our view,” says Hamish Pepper at Barclays.

Barring further unexpected negative political headlines from the US, Barclays do not think this week will provide such catalyst and expect the Cable to range-trade.

So it could be a case of patience for those watching this market.