While the Tory party is selecting its new leader – and Prime Minister – investors are distinctly unimpressed by any of the candidates. A quick look at Sterling’s key exchange rates show a persistent slide, perhaps investors are bracing themselves for the possibility of a ‘No Deal’.
Against the Euro, for example, the rate dropped from 1.180 to 1.112, a decline that was surprisingly consistent. No technical rebound detected at any round number level, e.g., 1.150 or 1.130 (see Featured Chart). The next support is at 1.110.
And while GBPCAD did exhibit a rebound at 1.700, it was brief and not strong enough to reverse the downtrend from 1.78 (see below). Prices are now probing the major support at 1.66-1.65. A break of this support is not to be ruled out.
Another Sterling rate that is testing its major support is GBPCHF. Prices have sunk below 1.240 (see below). The May-Jun decline is almost as large as the one back in Apr-Sep ’18. And given the consistency of this downtrend, more multi-year lows are a distinct possibility. Downside support at 1.220.
Other Sterling pairs that are falling include GBPSGD, GBPPLN and GBPNZD. In other words, GBP’s weakness is broad based.
In sum, GBP has remained weak despite its oversold technicals. Perhaps Sterling’s fundamentals and sentiment remain very unfavourable, ie No-Deal Brexit. The near-term market consensus is still to underweight British pound.
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Jackson has over 10 years experience as a financial analyst. Previously a director of Stockcube Research as head of Investors Intelligence providing market timing advice and research to some of the world largest institutions and hedge funds.
Expertise: Global macroeconomic investment strategy, statistical backtesting, asset allocation, and cross-asset research.
Jackson has a PhD in Finance from Durham University.