gbp fundamentals

British Pound Drops to Nearly 3-Year Low - Buying Opportunity?

Thursday, 09 October 2008 22:31:08 GMT  |  Terri Belkas, Currency Strategist

The British pound held its own for much of the European trading session, but around 10:30 EDT, the currency plummeted against the US dollar when stock markets in the US started to turn negative.

While the Japanese yen becomes the most attractive during times of market-wide risk aversion, the US dollar has taken second place which has worked against both the British pound and the euro quite a bit. Indeed, the UK’s bailout plan announcement has done little to soothe the fears of investors, and the latest economic data out of the UK hasn’t helped either. First, HBOS reported that the average cost of a home dropped 13.3 percent in September from a year earlier, marking the sharpest decline since records began in 1983. Meanwhile, the trade deficit widened to match a record in August of 8.2 billion pounds, as the global economic slowdown led export demand to falter. A closer look at the data shows that exports declined 4.5 percent, while falling domestic demand led imports to drop 3.4 percent. Overall, downside risks remain for the British pound from a fundamental perspective, though 1.70 - 1.71 has historically proven to serve as a solid support/resistance level for GBP/USD, suggesting we could see a bounce in the near-term.

Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.

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