The Bulls Are Back! GBPUSD Pair Likely to Surge in 2018
The GBP/USD pair – the cable – got off to a blistering start in 2018. From December 26, 2017, through January 3, 2018, the GBP rallied from 1.336 to its current level of 1.3508. The 52-week trading range of the GBP/USD is 1.1995 on the low end and 1.3616 on the high-end. This is encouraging news for currency traders and speculators who are now starting to go long on sterling. Prior to the Brexit vote on June 23, 2016, sterling was trading around 1.48 to the USD, and it appears that the trajectory of the currency is headed towards the 1.40 level.
Based on the current stats, the 1.360 level (January 2, 2018), the UK currency is trading well above its 50-day moving average of 1.331, and its 200-day moving average of 1.305. As sterling breaks away from these MAs, it is clear that there is greater optimism among traders. It’s important to understand why GBP is showing its mettle in the new year. For starters, Brexit negotiations are proceeding as expected.
Both the UK and the EU are working hard to hammer out a deal that suits both parties or is at least amenable to both sides. The pessimism that dominated the trading scene in 2016 and part of 2017 has largely subsided. The UK economy is for all intents and purposes fundamentally sound. Of course, the proverbial chickens have not yet come home to roost vis-à-vis Brexit concerns.
The UK is currently searching for ways to broaden its international trading agreements with partners around the world. In the absence of a favourable deal with Europe, many in government are hoping that the UK can forge lucrative trade agreements with the US and Canada, and Asian countries. Trade deals aside, there are more pressing concerns dominating the markets. These include the current fiscal and monetary policy measures by the UK government and the Bank of England respectively.
Presently, the BOE appears intent on maintaining a careful watch on economic performance with no indication of another interest rate hike anytime soon. The current interest rate in the UK is 0.5%, the unemployment rate is 4.3% and the inflation rate is 3.1%. The BOE maintained the 0.5% bank rate on December 14, 2017, as anticipated.
However, at the previous meeting in November, the bank rate was raised by 25-basis points. Further, the UK government will continue its policy of government bond purchases valued at £435 billion, and it will continue purchasing corporate bonds valued at £10 billion. Some of the important economic indicators to take into consideration this January include the following:
- Wednesday, January 10, 2018 – Balance of Trade for November
- Thursday, January 16, 2018 – UK Inflation Rate year on year for December
- Wednesday, January 24, 2018 – Unemployment Rate for November
- Friday, January 26, 2018 – GDP growth rate QoQ and YoY
There are some other changes afoot. For starters, speculators have adopted a net long position on sterling. The attractiveness of selling the GBP has faded, given that there are fewer obstacles in the path of an orderly Brexit. All things being equal, it appears ironclad that the UK will have a framework in place by March 2019. While the GBP/USD pair has whipsawed in recent days from around 1.3733 to its current level, the trend remains positive and traders are upbeat.
Do you think the GBP/USD pair will rally in 2018? What are your expectations for an orderly Brexit? Will your personal finances be affected by a rise in interest rates?
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for iForexTrader.co.uk.