GBPUSD Outlook: Sterling Makes Significant Shift to the Downside
GBP price, news and analysis:
- The ever-decreasing prospect of a UK interest rate hike by the Bank of England is weakening the British Pound following poor economic data.
- The Bank will likely wait for both an economic pickup and more certainty about Brexit before even considering tightening UK monetary policy.
Sterling undermined by weak UK economy
GBPUSD has dropped below the psychologically important 1.30 level and looks set to weaken further after making a decisive break below the support line of a bearish rising wedge pattern on the daily chart to its lowest level for two weeks.
GBPUSD Price Chart, Daily Timeframe (November 23, 2018 – February 6, 2019)
Chart by IG (You can click on it for a larger image)
The Pound has been undermined over the past week by survey data suggesting the UK economy is now spluttering. The purchasing managers’ index for the UK manufacturing sector, released last Friday, showed a fall in January to 52.8 from 54.2 – well below the predicted 53.5.
That lack of momentum was emphasized Monday by a weaker than expected construction PMI and again Tuesday by the service-sector PMI, which showed a drop from 51.2 to 50.1 – below the forecast 51.0, only a whisker above the 50 level separating expansion from contraction and the lowest for 2-1/2 years.
This suggests the Bank of England will be in “wait and see” mode when it makes its next interest-rate decision Thursday and will be in no hurry to raise rates for the rest of this year.
Brexit talks still stalled
As for Brexit, UK Prime Minister Theresa May will visit Brussels Thursday in yet another attempt to reach a deal but no breakthrough is expected and that too will likely prevent a significant recovery in GBP. A poll by the Reuters news agency released Wednesday showed respondents predicting that sterling will gain between 2% and 5% if the UK parts ways with the EU with a divorce deal but will slide between 5% and 10% in the event of a disorderly Brexit.
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--- Written by Martin Essex, Analyst and Editor
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.