GBP Currency Pair 2016
Will the British pound survive the economic difficulties in the UK?
GBP retreated from the strongest level in more than a week against USD and almost one-month high against the EUR after the release of data showing that business activity in the service sector of Great Britain fell on the lowest level since March of 2013.
In 2016 the pound is likely to remain vulnerable against the US dollar. In particular, the British currency will suffer due to the combination of tightening of financial belts, which will delay the start of rate hike by the Bank of England, and potentially a possible British exit from the European Union. Most likely the rate will enter the range of 1.35-1.40 with the potential to test the strength of its lower border.
However, the British currency reversed from its 7-year low of 1.3835 and began to recover previous losses. The driver of the currency grow was the speech of the Governor of the Bank of England at the Shanghai summit of Big Twenty. He stated that unlike other Central Bank, the Bank of England will not use the negative interest rates in its monetary policy.
This sentiment confirmed to the market that the British regulator does not seek to weaken the national currency. As a result, it is caused an increased demand to buy extremely oversold pound. It is important to notice that the pound is already trading near critical support levels and at any moment there may be the development of a downtrend correction.
The balance of industrial orders, according to CBI, which is a leading indicator for the UK economy, demonstrates negative dynamics for the last nine months in a row. The business climate index from the CBI in the last six months demonstrates the increasing pessimism, which was not observed since the 4th quarter of 2012.
That’s why the EUR / GBP currency pair 2016 growth will have a positive impact on the British economy, which is very handful for the Bank of England. Meanwhile, the strengthening of the European currency is clearly not included in the plans of the ECB.
In January of this year, Mario Draghi has already announced possible additional easing of monetary policy at the March meeting. In this regard a long position in the EUR / GBP currency pair 2016 is to be valid only until 10th of March. After that date they must be closed.
Recently speculators got rid of short positions in the British pound and long in the Japanese yen. The JPY / GBP currency pair 2016 traded with a positive attitude, rising to resistance around 162.44. With the beginning of the new year, stocks were under pressure so as the GBP/JPY pair, which at the moment has tested support around 160.36. A break of this level and the level of 160 will open the way towards 158. On the other hand, if the pound fixes above the level of 160 it may return to the area of 162-162.44.
The Swiss franc fairly fell against the pound. The quotations of the CHF / GBP currency pair 2016 raised by 1.2% indicating a big fall in the franc. It may be associated with bad news about trade balance. Indeed, it didn’t fall into the negative zone, but this result is still worse than the forecast and previous values.