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- Over the past week, the GBP/USD pair plummeted below the support level of 1.2200, the lowest level for the currency pair in about 14 months and closed the week's trading near these losses.
- Sterling losses against other major currencies increased as concerns about rising borrowing costs in Britain undermined the currency pair.
- Overall, the rise in government bond yields and the decline in the pound sterling were a clear reflection of the market's discomfort with the fact that Reeves must now find billions of pounds in additional taxes or spending cuts to ensure compliance with a fiscal rule to ensure that debt as a percentage of GDP declines by 2029.
Pressure Factors on the Pound Sterling
According to reliable trading company platforms, the pound sterling (GBP) faced further losses against other major currencies as ongoing concerns about rising borrowing costs in Britain continued to weigh on sentiment. Recently, the yield on 10-year UK government bonds rose to its highest level since 2008, raising concerns about the country's financial stability and the ability of the British government to effectively manage its economic challenges.
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The pressure on the pound and the US dollar are still receiving more strength, which will ensure that the downtrend in the pound/dollar will remain for some time the selling of the pound continue?
In this regard, according to analysts from Deutsche Bank, the fundamental shifts that could work against the pound in the future include:
Loss of volatility-adjusted carry. This is where capital flows to countries with higher interest rates, which the UK prides itself on. But for this strategy to work, volatility must be low. According to the analysts:“Recent volatility is harmful.”
Meanwhile, the UK is printing“significantly weaker-than-expected economic data”. The first half of 2024 saw the opposite, with the UK growing faster than all its G7 peers.
Deutsche Bank therefore believes that the economic deterioration means there is a growing possibility of further interest rate cuts by the Bank of England this year compared to the current 50 basis points in money markets. Furthermore, the improvements in the current account deficit seen over recent years are also likely to fade as energy prices rise again. Deutsche Bank analysts added,“A wider current account deficit ahead increases the case for sterling weakness in an environment where UK yield rises are limited by the need for monetary policy easing,”.
They added,“After profiting on our long sterling positions at mid-December highs, we now recommend selling sterling,”.
EURUSD Chart by TradingViewTechnical Analysis for the GBP/USD pair today:
Dear reader, according to recent trades, the overall trend of the GBP/USD currency pair is increasingly downward, and its recent losses were enough to push technical indicators towards oversold levels, led by the Relative Strength Index and the MACD. Currently, the closest support levels for the pound sterling are 1.2155, 1.2080, and the psychological support of 1.2000. Forex investors may look for buying opportunities, but this may be cautious until sentiment towards the sterling improves.
Conversely, and over the same timeframe, any attempts by bulls to rebound upwards may encounter resistance at levels of 1.2440 and 1.2600 respectively. Until then, gains in the pound sterling will remain vulnerable to a rapid collapse.
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