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- GBP/USD a sell at ING as Brexit outweighs economic data.
- With EURUSD also under pressure, GBP set to extend slide.
- Commerzbank also a seller of GBPUSD on technical factors.
- 1.2359 lends support but GBP remains "offered" below 1.2606.
The Pound was on course for its third consecutive day of losses early Wednesday and is likely to remain under pressure in the weeks ahead, according to analysts at ING Group, who say the British currency is a sell.
Sterling has been punished this week after the Dollar stabilised and as both candidates to replace outgoing Prime Minister Theresa May have hardened their language about negotiations with the European Union. Analysts at both ING and Commerzbank are now betting against the Pound.
Frontrunner Boris Johnson and foreign secretary Jeremy Hunt have said the so-called Northern Irish backstop in the current EU withdrawal agreement must go or the UK should contemplate leaving the bloc via a 'no deal' Brexit.
Most notably Jeremy Hunt, a Theresa May ally, has recently adopted the mantra that the backstop must go and that a 'no deal' Brexit should "remain on the table". He's been joined in his newfound position by another May cabinet stalwart, the work and pensions secretary Amber Rudd, who until recently was one of the most vociferous opponents of walking away from the talks and a key advocate in cabinet of a 'people's vote'.
Above: British Pound performance Vs G10 rivals this week. Source: Pound Sterling Live.
Although made during an ongoing leadership election that will determine who completes the Brexit process as Prime Minister, the above statements have created an impression in the market that the government is becoming less averse to the idea of a 'no deal' Brexit.
And the clock is rapidly ticking down to both the July 23 announcement of the Conservative leadership ballot result as well as the October 31 expiration of the current extension to the Article 50 negotiating window.
"It is the Brexit noise and rising perceived probability of hard Brexit that remain the key driver of GBP. This was very evident yesterday, when comments from the Conservative party leadership contenders weighed on GBP, with the currency looking through the very solid wage data," says Petr Krpata, a strategist at ING.
Pound Sterling is now the worst performing major currency for this week as well as this month. It's fallen 4.8% against the Dollar in the last three months and is down 2.6% for 2019 after having previously risen by around 5% during the first eight weeks of the New Year.
Those ups and downs reflect the ebb and flow of market hopes that the saga being written in Westminster and Brussels would utlimately culminate in a 'soft Brexit' of one kind or another, although as things stand this July, such a thing is looking less and less likely in the eyes of the currency market.
Above: Pound-to-Dollar rate shown at daily intervals.
Fears over the exit path have seen Pound Sterling become completely unresponsive to traditional economic fundamentals.
Tuesday saw the Office for National Statistics announce that wage growth was its fastest for 11 years in the three months to the end of May, which normally would have encouraged speculation about interest rate hikes from the Bank of England and lit a fire under the British currency.
However, the Pound continued its migration south ahead of the autumn period and Brexit deadline in the wake of Tuesday's economic numbers. The British currency saw only a mild and very temporary boost Wednesday when other data showed inflation sitting on the 2% target of the Bank of England (BoE) for a second consecutive month.
"Expect more of the same today, with any positive UK data points playing a second fiddle to Brexit. With EUR/USD under pressure, short GBP/USD remains attractive," says ING's Krpata.
Above: Pound-to-Dollar rate shown at weekly intervals.
"GBP/USD has sold off aggressively eroding the 1.2444/39 supports to fall into new 2 year lows. We note the 13 count on the 60 minute chart and the TD support at 1.2359, and then we have very little until the 1.2108, the 78.6% retracement of the entire move up from the 2016 low. The market now stays offered below the 1.2605 downtrend," says Karen Jones, head of technical analysis at Commerzbank.
Jones has told Commerzbank clients this week to sell the Pound-Dollar rate having attempted to buy the 'dip' carved out by the exchange rate last week. The German lender entered its trade around 1.2575 early Monday and will continue betting against Sterling so long as it remains below 1.2610.
Commerzbank bought the Pound-to-Dollar rate last Wednesday around the 1.2452 level after Sterling fell sharply during the previous overnight session, taking it beneath the 1.25 handle. The bank took profits on the trade at 1.2650 and walked away Monday from the rest of it.
"[The] Long term trend (1-3 months) targets 1.2108, the 78.6% retracement of the move up from 2016. This is the last defence for the 1.1491 2016 low," Jones writes, in a note to clients Wednesday.
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