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British Pound (GBP) Latest: Further Weakness Likely Against USD and EUR

British Pound (GBP) Latest: Further Weakness Likely Against USD and EUR

2020-03-12 10:00:00
Martin Essex, MSTA, Analyst

GBP price, news and analysis:

  • Sterling continues to weaken against the US Dollar and could fall further after this week’s emergency UK interest rate cut and huge fiscal stimulus package.
  • The uptrend in EUR/GBP also looks set to continue despite the likelihood of more monetary stimulus by the European Central Bank later Thursday.
  • Unusually, the British Pound’s weakness is coinciding with further falls in the FTSE 100 index of leading London-listed stocks.

GBP/USD Price Outlook Poor

The British Pound could suffer further weakness as it continues to sell off against the US Dollar and the Euro in the wake of Wednesday’s emergency half-point cut in UK Bank Rate to 0.25% from 0.75% and a Budget that included £30 billion of stimulus measures to boost the economy in the face of the coronavirus outbreak and more than £600 billion of infrastructure spending over the next five years.

This compares with relatively minor action in the US, which has restricted travel from Europe – excluding the UK – but has failed so far to introduce Government measures to offset a likely drop in demand caused by the spread of the Covid-19 virus, which has now been officially designated a pandemic by the World Health Organization.

The markets are implying a 96% chance that the US Federal Reserve will cut interest rates by a full percentage point to 0.0%- 0.25% on March 18, having only just reduced the Federal Funds rate by half a percentage point to 1.0%-1.25% in an emergency move on March 3.

Nonetheless, GBP/USD is now clearly trending lower and will likely suffer further losses.

GBP/USD Price Chart, Hourly Timeframe (March 9-12, 2020)

Latest GBP/USD price chart.

Chart by IG (You can click on it for a larger image)

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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 14% 8% 11%
Weekly -26% 146% 9%
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EUR/GBP Price Outlook Positive

The outlook for Sterling against the Euro is poor too. The European Central Bank is expected to ease monetary policy further later Thursday but has little room for maneuver, with its key interest rate already at minus 0.5%. A cut to minus 0.6% is now priced in but the markets will be focused on any additional measures from the ECB to boost Eurozone demand as the coronavirus spreads.

Unless the ECB acts decisively, this implies further gains for EUR/GBP.

EUR/GBP Price Chart, Hourly Timeframe (March 9-12, 2020)

Latest EUR/GBP price chart.

Chart by IG (You can click on it for a larger image)

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FTSE Downtrend to Continue

Unusually, the weakness of GBP is coinciding with losses for the FTSE 100 index of the major London-listed stocks. Many of these are export-oriented so benefit from a weaker Pound. However, UK equities have been caught up in the general slump in global stocks caused by fears the coronavirus pandemic will weaken the world economy and concern about the relatively limited response by US President Donald Trump.The FTSE is therefore likely to extend its recent decline, with airlines and insurers likely to be among the hardest hit.

FTSE 100 Price Chart, Four-Hour Timeframe (February 21-March 12, 2020)

Latest FTSE 100 price chart.

Chart by IG (You can click on it for a larger image)

How to Invest During a Recession: Investments & Strategy

We look at Sterling regularly in the DailyFX Trading Global Markets Decoded podcasts that you can find here on Apple or wherever you go for your podcasts

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below

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