The Pound to Dollar exchange rate is quoted at 1.2275 at the time of writing, well below the highs towards 1.28 reached in early December.
The 1.22-1.24 range in GBP/USD - in place since December 20 - lies just above the 30-year lows reached in October and nerves are growing amongst Sterling bulls that these levels will be tapped once more.
The most recent decline in Sterling coming despite some impressive domestic UK data that saw manufacturing activity pick up at its fastest rate since 2013 in December.
The failure of GBP/USD to catch a bid confirms to us that this is an exchange rate being almost exclusively driven by the Dollar.
The Dollar shot higher at 15:00 GMT with the released of the ISM Manufacturing PMI for December which read at 54.7 which is better than the 53.6 forecast by economists.
Sterling bulls will be in a sulk over this - when the UK pumps out some brilliant data the Pound sits stubborn but when the US economy does the same the Dollar lifts off.
This confirms that Sterling remains a currency ultimately dictated to by sentiment - specifically Brexit sentiment - and there have been no positive headlines on this front of late.
If anything, news has been negative with the resignation of the UK's ambasador to the EU. Ivan Rogers, Britain's envoy to the EU, told staff on Tuesday that he would step down from his post early but did not explain his reasons for resigning.
"The news of the resignation of the UK ambassador to the EU Sir Ivan Rogers reversed some of GBP gains yesterday following the stronger than expect Dec Manufacturing PMI. While the near-term impact should be muted and not long-lasting (as suggested by lower EUR/GBP overnight), the yesterday’s news underlines the downside risks GBP is to face once the Article 50 is triggered," says Petr Krpata at ING in a note seen by Pound Sterling Live.
US Dollar has the Momentum
It's simply not the time to stand in the way of the Buck.
The Dollar's multi-year rally clearly has further to run and analysts are forecasting further GBP/USD weakness on momentum alone.
"The Dollar rally is being driven by enormous investor expectations that the relatively strong US economy will accelerate even further under the leadership of Donald Trump who is expected to stoke growth through fiscal stimulus and deregulation. Mr. Trump’s policies will take months to be put into effect, but in the meantime the markets will need to key off the US data. Given the very high expectations, the possibility of disappointment is high," says Boris Schlossberg at BK Asset Management in New York.
But what levels should those with a view on transacting in Sterling-Dollar in the nearer-term be watching?
“Since peaking at 1.2775 in early December, just ahead of key 1.28-1.30 resistance, we have been drifting back towards medium term range supports in the 1.2080-1.20 region,” says analyst Robin Wilkin at Lloyds Bank Commercial Banking in a note seen by Pound Sterling Live.
That said, we must be aware that the US Dollar tends to underperform in the weeks following the inauguration of a new US President.
Why this is remains hard to explain, but the evidence is there.
Therefore, perhaps downside in GBP/USD will be contained on this anomaly alone.
Yet, any relief in GBP/USD could remain temporary in nature.
Bill McNamara, an analyst at brokers Charles Stanley in London, tells Pound Sterling Live that he believes a final impulse lower:
“The UK currency began 2016 at 1.47 against the dollar but the persistent downtrend that has been in place since the middle of 2014 continues to exert a powerful influence and it ended the year pretty close to the lows.
“Although its recent weakness has left sterling looking somewhat oversold on a short-term view the technical outlook remains equivocal and it is not at all clear that it has found a bottom in an environment where market participants are still looking for clues as to what a UK ‘Brexit’ might look like in practical terms.”
McNamara believes October’s closing low at 1.2117 could well get a further examination before this weak spell is over.