It has now been over two years since the historic EU referendum, but uncertainty surrounding Brexit and concerns over Britain’s economic outlook remain as much a mystery as ever.
This article is originally referred from FXTM Quarterly Market Outlook - Glogal Head of Currency Strategy and Market Research at FXTM.
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Despite the Pound’s unexpected resurgence in early April, which resulted in prices peaking above 1.43 on expectations of an imminent UK interest rate hike, the rally in the Pound soon crashed to the ground like a house of cards.
Another swerve on the UK interest rate outlook from BoE Governor Mark Carney, a string of disappointing economic data domestically and tepid growth figures led to a rush of investors selling the Pound.
The Pound crashed and many remain downbeat on the currency to date.
reoccurring concerns over a lack of progress in Brexit negotiations, and uncertainty over the UK Prime Minister Theresa May’s future, are seen as a risk for the Sterling – which looks likely to remain on the back foot as trading for the second half of the year gets underway.
A broadly stronger Dollar is likely to compound a bearish outlook.
As we head into the third quarter of the trading year, the performance of the Pound is likely to be influenced by BoE rate hike expectations and any progress in Brexit talks.
Although June’s unexpectedly hawkish BoE meeting has raised speculation of a potential hike in August, investors should not expect too much.
Political risks, Brexit-related uncertainty and global trade tensions may force the BoE to delay monetary policy normalization this year.
There is a strong suspicion that the central bank could remain on standby until there are consistent signs of improving domestic economic data, rising wage growth and easing trade tensions.
Regarding Brexit, the ongoing uncertainty over the Northern Irish border issue remains a major risk.
With the clock ticking and the Brexit deadline looming, investors are likely to remain wary of holding the Pound.
Investors should also keep in mind that the Dollar has scope to extend gains as expectations mount over the Federal Reserve raising interest rates at least twice more this year.
I believe the monetary divergence between the Fed and BoE supports the argument over the GBPUSD remaining fundamentally bearish in the long term.
Taking a look at the technical picture, the GBPUSD has repeatedly failed to conquer the solid 1.4392 resistance level this year. The solid breakdown and monthly close below 1.3450 suggest that prices are coming under increasing selling pressure.
The forming three black crow formation on the monthly charts compliments a bearish view and suggests that the GBPUSD could challenge 1.2940 at a later date. The weekly timeframe illustrates a similar bearish picture with 1.3030 in sight.
A decisive weekly close under this level could potentially encourage a further decline towards 1.2762.
Daily traders will continue to closely observe if the GBPUSD is able to continue creating new lower lows and lower highs.
While a daily close below 1.3030 may inspire a selloff towards 1.2900, a breakout back above the 1.3290 lower high could trigger a technical rebound higher.