The GBPUSD downward spiral is continuing for the third successive week, with the Sterling now dropping to a near five-year low against the Dollar at 1.4663. Although the UK Jobless Claims data once again showed the strength of the UK employment market, the average wage growth figures falling far below expectations has alerted and reignited the GBPUSD bearish momentum. Wages declining will only further strengthen the Bank of England’s (BoE) already dovish views on inflation, while also continuing to erase any remaining optimism for a UK rate rise during 2015.
The GBPUSD has now nosedived from 1.55 to 1.46 in just over three weeks, although I personally think that the pair will continuing sliding down the charts over the next month and target 1.42/1.43. There is just a complete lack of investor attraction towards the UK currency, with concerns stretching further than the BoE’s laissez-faire attitude towards raising UK interest rates. The UK economy is also encountering completely unexpected inflation risks following the dramatic drop in the price of oil, and with the ECB launching QE meaning that the euro has entered a new era of currency weakness, downside inflation pressures will remain on the UK economy beyond the first half of this year. Not only this, there is a critical UK election in two months and this will encourage further hesitance from investors towards the pound.
The UK election looming on the horizon is contributing to the GBPUSD decline, and you just have to look at Sterling volatility being at its highest level since the Scottish Referendum to see that investors are nervous about the event ahead. The Scottish Referendum last September created completely unexpected GBPUSD volatility and after declining from 1.66 to 1.60 in a couple of days, the pair failed to recover its momentum and has continued falling since. Taking into account the recent GBPUSD fall and Sterling volatility already being at its highest level since the Scottish Referendum, it does appear that traders are closing positions early. However, if the UK election is as close as the latest opinion polls suggest and volatility rises further as a result – a potential move to the low 1.40’s for the GBPUSD is on the cards.
Follow Jameel on Twitter @Jameel_FXTM
Advertisement
For more information please visit: Forex Circles
Add a comment
