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GBPUSD – 31 Year Low with more downside

Market Analysis

GBPUSD, Daily              

The pound has surpassed the post-Brexit vote low at 1.2790 versus the dollar, which was seen in early July, making new 31-year lows under 1.2760. Sterling has also tumbled into fresh three-year low territory versus the euro and currently trades at 0.8750. Forex markets are factoring in UK PM May’s suggestion, at the weekend, that the government will be taking a “hard” Brexit stance heading into negotiations with the EU. May and other ministers have been talking up ambitions to limit free labour movement, which is what making onlookers discern as being “hard” exit talk. A hard exit would mean that the UK insists on taking full control of its border, something that would likely cut of the UK’s unfettered access to the single market and erode the economy’s terms of trade. Sterling markets are also factoring in further BoE easing. The central bank’s deputy governor Shafik said last week that “further monetary stimulus will be required at some point.”

My comments from July 1st at the beginning of Quarter 3 were ….. “there really appears to more stress ahead for sterling.  GBPUSD currently trades at 1.3300 and I can see 1.3000, 1.2500 and even 1.2000 over the next few months.  The gap at 1.3450-13650 would probably need to be filled before the next move down. The trigger is likely to be a BOE interest rate cut in either August or even as early as this month.

And yesterday: “The post Brexit low 1.2790 is clearly in sight and the fourth quarter end of year targets remain to the downside at 1.2500 with scope for 1.2000.

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Stuart Cowell

Market Analyst

HotForex

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