It’s been an up and down year for the GBP-USD with political turmoil at both sides of the Atlantic causing the value of both currencies to fluctuate rapidly.
In the last couple of weeks, we’ve seen the currency pairing on another downward trend, reaching as low as 1.21 on March 8th.
Signs Appear Bullish
However, the signs have now become bullish for the currency pairing, as the lower lows of the exchange rate on the market were not matched by momentum, meaning that a number of investors have shown signs of holding on to the currency.
As a direct result, it appears as though the currency will not stall at the 1.21 level for long, and we can expect gains in the short to medium term. As such, those currently fx trading should be on high alert for any potential gains on the currency pairing.
Currency Pairing Could Yet Fall: Factors to Watch
It’s still possible that the currency pair could fall below the 1.20 level in March, meaning that it’s well worth keeping a close eye in case the bullishness fades. After all, it has been a punishing few months for GBP in particular, as Brexit uncertainties have meant that capital has often flowed away from the pound.
Likewise, rumours continue to swirl that we may see a FOMC rate hike, which has caused sentiment to flow away from the pairing which had one as high as 1.26 earlier in the month. If the predicted hike materialises, then we may see further falls.
Would the Decline be Temporary?
In a worst case scenario for the currency pairing, we would reach the lows of July-October 2016. However, market sentiment is different from this period now and there appears little appetite to sell at this current rate.
As such, although the short term outlook may not be overwhelmingly positive for the embattled currency thanks to uncertainties over the UK’s exit from the EU, inflationary pressures are starting to awaken and the pound is currently looking like a robust currency even in this light.
Resultantly, it appears as though any wobble that could be experienced in the near term would only be temporary, as fundamental factors continue to show an underlying currency strength for the pound.
The same can be said of the dollar too, with a strong ADP report helping the currency’s valuation. Helped by an expected March interest rate rise, the currency has solidified its position and now has increased expectations for subsequent rises.
The recent ADP report was not expected to be good for the dollar. However, it turned out to be unexpectedly strong, leading to very strong suspicions that the Fed will finally hike interest rates. Likewise, and in further good news, the USD Index has also broken out of a downward spiral.
Although several analysts were confident that the Fed would hike rates prior to the ADP report, it now seems all but certain. The Fed next week on 15 March when a decision will be made. Prior to then, we may see the dollar get another boost from rate expectations. For now though, we’ll just have to watch this space.
To conclude, the last 6 months have not been strong for the GBP-USD pairing. However, although some short term choppiness may still lie ahead, market sentiment now appears to be positive, particularly in America where a strong ADP report and a potential Fed rate hike mean that analysts are positive. In the UK, Brexit uncertainty is still leading to a cautious outlook, but underlying factors mean that the currency does appear robust. March may not be the best time for the currency pairing but don’t expect the rough patch to be around for long.