10 Oct 2013
GBP/USD Is Cable ready to snap?
FXstreet.com (London) - Sterling has been steadily advancing on consistently strengthening UK macro numbers. From 10 July lows of USD1.4861, GBP/USD climbed to USD1.6236 on 3 October – the best performing of the G10 currencies.
However, sterling may well have reached the end of its run. As good news becomes the norm, anything below positive growth presents a risk for sterling strength. Yesterday’s industrial production data miss helped drive GBP/USD down to USD1.5915. Industrial production dropped by 1.1 percent month-on-month while manufacturing fell by 1.2 percent month-on-month.
Yesterday gave further cause for concern for sterling bulls. Though the US trade deficit fell slightly in August, it remains wider than the second quarter, dragged be weak export growth. With any growth in the Eurozone decidedly fragile, export growth may remain under pressure into the third quarter.
The Bank of England surprised nobody by holding rates at record low levels at 0.5 percent, a policy that will do nothing to aid those who have seen negative real wage growth over the last three years, which will continue to dent domestic consumer spending.
On the other leg of the pair, dollar strength has been suppressed by concerns over the US debt ceiling. Congress now has just seven days to reach an agreement to extend the debt limit and avoid default. With it almost certain that congress will pass an agreement at the 11th hour, USD will rally on news, further denting cable.
However, sterling may well have reached the end of its run. As good news becomes the norm, anything below positive growth presents a risk for sterling strength. Yesterday’s industrial production data miss helped drive GBP/USD down to USD1.5915. Industrial production dropped by 1.1 percent month-on-month while manufacturing fell by 1.2 percent month-on-month.
Yesterday gave further cause for concern for sterling bulls. Though the US trade deficit fell slightly in August, it remains wider than the second quarter, dragged be weak export growth. With any growth in the Eurozone decidedly fragile, export growth may remain under pressure into the third quarter.
The Bank of England surprised nobody by holding rates at record low levels at 0.5 percent, a policy that will do nothing to aid those who have seen negative real wage growth over the last three years, which will continue to dent domestic consumer spending.
On the other leg of the pair, dollar strength has been suppressed by concerns over the US debt ceiling. Congress now has just seven days to reach an agreement to extend the debt limit and avoid default. With it almost certain that congress will pass an agreement at the 11th hour, USD will rally on news, further denting cable.