GBP/USD Defends 1.30, but Forecast to Ultimately Break Lower
While the Pound to Dollar exchange rate has turned negative once more we are seeing a rear-guard defensive action on the big 1.30 support zone. However, this level is widely expected to fall away.
GBP/USD is seen trading at 1.3040 at the time of writing - near to where it opened at the start of the week.
Foreign exchange markets have seen volatility fade with traders clearing their tables ahead of the Bank of Japan and US Federal Reserve policy decisions due mid-week.
GBP/USD has found strong support in the 1.30 area - this should come as no surprise as these big figures tend to draw a good deal of psychological support.
Concerning the outlook, we note the pair has just reversed its short-term trend and is expected to fall further:
This trend is likely to continue as the GBP/USD has clearly broken below the 50-day moving average.
Despite the double bottom pattern which has been forming during the summer, the upside break failed to extend to its target and now the exchange rate is dropping instead.
A break below the 1.3050 level would probably confirm more downside to an eventual target at support at 1.2880.
Latest Pound / US Dollar Exchange Rates
  | Live: 1.3323▼ -0.02%12 Month Best:1.3789 |
*Your Bank's Retail Rate
| 1.287 - 1.2924 |
**Independent Specialist | 1.3137 - 1.319 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
Two Fundamental Reasons to Bet Against Sterling
Sentiment towards Sterling remains poor with a big dip in GBP/USD of late being supplied by two factors:
1) Reports that the UK finance minister is willing to give up access to the EU's single market for sovereignty of the country's borders.
The government's credibility now largely rests on its ability to regain control over U.K. borders after the June 23 Brexit vote and Chanceloor Hammond considers it unrealistic to expect actual membership of the single market after Britain leaves the EU as a result.
The report was published by Bloomberg citing an unnamed official.
2) The US Dollar strengthened notably following the release of US inflation data on Friday the 16th September.
Year-on-year inflation in the US rose 1.1% compared to 1.0% expected and 0.8% previous; Month-on-month it rose 0.2%, beating forecasts of 0.1% and above the 0.0% July figure.
The data increases the chances the Federal Reserve will raise interest rates before the end of the year.
The probability of a rise at the FOMC meeting on Wednesday the 21st, based on Fed Funds Futures is still only 15%.
The probability of a hike in November is 23.8% and the probability of rate hike in December 52.8% - up from under 50% before the CPI release.
The event saw the Pound to Dollar exchange rate slip down to 1.30 on the inter-bank markets.
This saw rates for international payments on bank accounts range between 1.2633 and 1.2542.
Independent providers are meanwhile quoting between 1.2880 and 1.2789.
Chances of a November Interest Rate Cut at the Bank of England
There is another reason for Sterling's recent underperformance.
The Pound trades heavy after the Bank of England (BoE) monetary policy committee opted to leave policy unchanged on Thursday but failed to defer expectations for further policy measures to be announced in November.
The bank has adopted something of a wait-and-see approach, although there is a high chance of further stimulus in November which remains ‘live’ for a ‘top-up’.
Member’s McCafferty and Forbes thought there was no need for more bond buying.
This means there is a possibility of a rate cut in November, and a lesser chance of more QE (bond-buying), however, more strong data could change that expectation, which would strengthen sterling.
