Down with the Pound

Over the past few trading days, the British pound has been confined to a very tight trading range. The following chart illustrates the predicament that GBP/USD traders find themselves in right now and I believe that the breakout will be to downside with the GBP/USD testing 1.60 in the near term.

This morning, Standard & Poor’s announced that “We no longer classify the United Kingdom (AAA/Negative/A-1+) among the most stable and low-risk banking systems globally” and I have to say that this is HUGE. S&P had already lowered the U.K.’s place in its Banking Industry Country Risk Assessment gauge to Group 3 from Group 2 on Dec. 21. The risk of investing in the U.K. is now on par with the risk of investing in countries like Portugal, Saudi Arabia, Ireland, Chile and Austria. You can imagine what this means to investors looking for a place to put their money.

On top of that, the outlook for consumer spending is quite dismal. In my daily report yesterday for FX360.com, I talked about how the CBI retail sales index fell by the largest amount since August 2009 which suggests that U.K. consumers cut back spending after the holiday shopping season. There is a very good chance that this weakness will feed into the retail sales report and therefore we remain skeptical of the rally in the GBP/USD and believe that the odds are skewed towards a move down to 1.60. The latest announcement only strengthens this call.

Here’s a daily chart of the GBP/USD.

Source: eSignal

Source: eSignal

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11 Comments

  1. If GBP/USD will go lower, it won’t be because of consumer spending or S&P, but because USD and JPY are currently the stronest currencies around, while exotics, NZD, EUR are at the other end of the scale. GBP is doing quite well (general election ahead), it was the strongest currency on Monday. There is no technical signal yet on the charts that of reversing, so these tendencies should continue.

    Reply
  2. Just for the record, the UK’s public debt CDS went over the 100 mark today… It is becoming increasingly difficult to keep a straight face when reading about the S&P’s UK’s AAA rating.
    That said, USA’s one went up to 61…

    Reply
  3. Hi, I’m going to America in April and starting to worry about the GBP/USD rate. Do you think I should buy now or give it some time? I understand this will be hard to predict but any you make will certainly be an improvement on mine. Many Thanks

    Reply

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