By Michael Baker

Sterling has come under increased pressure in recent days as political instability and a lacklustre CPI reading push the pound to new yearly lows.

UK PM Theresa May narrowly saw off a proposed amendment to keep the UK in the Customs Union as a backstop if no deal is reached, but with only a majority of 6 votes, there is now a real concern of a potential no-confidence vote. After yesterdays firm labour market readings which showed that near-term economic trends remain positive, today’s CPI reading undershot expectations. Bloomberg was looking for a 2.6% y/y reading but the actual figure came in at 2.4%. The Bank of England was forecast to move on rates at their rate-setting meeting on the 2nd August, however, this low reading coupled with the political climate could be enough to put it on hold.

Sterling has fallen as much as 2.6% from the July high of 1.3362 and the recent yearly low we saw in June has given way. This leaves us open for a possible move on the lower band of the trend channel. Below here will be confirmed as a solid break of the lows we saw back in October and November 2017 and the 50% daily fib from October 2016 to April 2018. Moves lower may see us push to the September 2017 break out zone at 1.3 and then below here we have a 61.8% fib at 1.2772 which sits on the August 2017 low.

GBPUSD – Daily Chart – Weak performance due to political instability

ETX-Chart_Sterling_stalls

Source: ETX Capital



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