What Is Driving the GBP/USD Pair This Week?
Too Many Short-Sellers Yanking the Cable
Currency traders’ opinions of the GBP/USD pair are evident from the above graphic. The chart represents the hemorrhaging that has been taking place with the GBP/USD currency pair since the Brexit referendum in June last year. At the time, the sterling was trading at 1.48 to the greenback, and nobody imagined the possibility of a yes vote on the Brexit. The shock sent the GBP/USD pair plunging to a 31-year low, and the currency earned the detested title of worst performing G10 currency.
The red movements in the above chart are indicative of depreciations in the GBP/USD pair, and the overwhelming trend has been negative for 8 months. That the GBP/USD pair has stabilized in a tight trading range between 1.23 and 1.24 in February is notable. However, this has not boosted prospects for the cable which remains perilously close to the 50-day moving average of 1.239, and beneath the 200-day moving average of 1.292. Whether the GBP will start to enjoy upward pressure remains to be seen.
Currency traders avoid knee-jerk reaction to the cable
Currency traders have taken their cue from current trends. In trading circles, it is widely accepted that the trend is your friend, and this certainly holds true for the cable. Recently, mention was made of a survey among chief executive officers. Some 33% of all CEOs still regard the United Kingdom as a favorable destination for investments. This is surprising given that Brexit pressures are forcing many banks and financial institutions to reassess using London as their base of operations. Nonetheless, The City of London and the United Kingdom overall are regarded as a top 3 investment haven. In fact the UK ties with Germany in this regard. This opinion is shared by many investors, and it flies in the face of Brexit uncertainty. In terms of its effect on the GBP, it is bullish.
How will president Trump place pressure on the GBP this week?
US president Donald J. Trump addressed a joint session of Congress on Tuesday, 28 February 2017. In his first speech to Congress, he alluded to his plans for immigration, infrastructure growth and development, and a rebuilding of the US military. Trump wants to spend $54 billion-$84 billion rebuilding the US military. He has made these plans known for quite some time, and they feature prominently on the campaign trail. Trump plans to cut expenditure at the State Department and elsewhere to make up for the rise in military spending. The effect of fiscal stimulus on the US economy is telling. For starters, the GBP/USD pair will take some flack from this and retreat. Traders are carefully eyeing the US dollar index to determine which way the GBP/USD pair will move, although the general perception is bearish.
Perhaps the most important criterion for GBP/USD strength or weakness is the Brexit issue. Currency traders, analysts and investors are concerned about the significance of all the time devoted to Brexit discussions at government level. Economists are eager to see what the UK’s plans are vis-à-vis economic growth and development, infrastructure, jobs and the like. Next Wednesday, Philip Hammond, the Chancellor of the Exchequer will reveal the spring budget. This is a highly anticipated economic data release, and it will certainly provide direction for the GBP/USD. With respect to invoking Article 50 of the Lisbon Treaty, Prime Minister May will likely initiate proceedings by April 2017.
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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.