UK Economic Slowdown Makes Pound Weak

British MoneyDuring the past 2 months, the Pound has an amazing rally against the Greenback. The uptrend of Pound against US Dollar was supported by the announcement of early elections and good economic data.

During the last 30 days, the currency pair GBP/USD has increased to approximately 500 pips and reached a figure of 1.3047. However, the currency pair is showing some signs of a bearish reversal in the past few trading reasons because of certain reasons discussed below.

The Office for National Statistics submitted the second GDP estimate report and has confirmed the fears of economic slowdown in the United Kingdom.

In the quarter ending March, a lower than expected GDP growth of 0.2% was registered because of declining retail sales and household spending. In the previous quarter, the GDP growth was 0.3%. The analysts have speculated the GDP growth to remain flat at 0.3 percent compared to last quarter.

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Contrary to popular assumption, a lead between Labour Party and the Conservatives has narrowed down considerably. It was reported according to a recent survey of United Kingdom snap election. A recent survey by YouGov shows Conservatives leading the Labor Party by 43 to 34 percent. Earlier in the month of April, the market supported the surprise election announcement on the basis that Conservatives would make plenty of profits and would give a free hand to May in the Brexit negotiations. However, there is no credibility in the argument any further. Hence, the sentiments towards Pound have turned bearish.

The rising confidence of investors in Euro Zone is causing undue pressure on the Pound. After the clear victory of Emmanuel Macron in French elections recently, the political uncertainty has disappeared. Clear signs of inflationary pressure are evident. The Pound is likely to lose its sheen because the Euro is getting attractive.

The minutes of the FOMC meeting in the United States show that majority members of rate-setting committee support the hiked rate in June. All fears of postponement in rate hike have disappeared. The odds of rate hike based on the report have again risen to around 78 percent. The US dollar is likely to gain strength when the market starts pricing in a rate hike. At this point in time, a decline in the currency pair GBP/USD is highly likely.

Based on the price chart, the currency pair breaking the ascending channel is clearly evident. The stochastic oscillator is descending and is out of the bullish zone. There is a sharp decline in few notches above 100 levels as evident by momentum indicator. Hence, it is quite clear that currency pair sees an increase in selling pressure.

GBP/USD Pair: May 29th 2017

GBP/USD Pair: May 29th, 2017

By going short in the currency pair, one can generate profits from the downtrend. As a trader, you need to open a short trade around 1.2840 and place a stop order loss above 1.2960. Profits can be booked at 1.2600.

Trader concerned can establish a similar trade in binary options market by purchasing low or under contract. Select the expiration date of trade around 7th June and enter when the currency pair is trading near 1.2840 in OTC market.


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