The Pound collapsed against the US Dollar last week, depreciating almost six cents to a new seven-year low as investors scrambled to protect themselves against a ‘Brexit’ in June of this year.
Boris Sends Sterling Reeling
‘Cable’ plummeted two cents at the start of last week’s trading session as markets reacted acerbically to London Mayor Boris Johnson’s announcement that he would be supporting the ‘Brexit’ camp in June’s EU referendum. The high profile Tory MP is hugely popular and subsequently the prospect of Britons voting to leave the 29-nation bloc strengthened massively following his statement.
Monday was Sterling’s worst day against the ‘Greenback’ since David Cameron came into power on May 6 2010.
Tuesday wasn’t much better for Sterling and GBP/USD depreciated by a further -125 pips to another fresh seven-year low as Bank of England Governor Mark Carney commented that the monetary policy outlook was balanced between a rate rise and a rate reduction.
‘Cable’ Succumbs to New 7-Year Lows
The Pound continued to slide on Wednesday as ‘Brexit’ hysteria escalated following remarks from prominent ‘OUT’ campaigner Michael Gove. The Conservative Justice Secretary claimed that Prime Minister David Cameron’s recent EU concession deal was not legally binding and could be revoked by the European Court of Justice. Although both Cameron and European Council President Donald Tusk rebutted the claim, sentiment towards Sterling was negatively affected.
GBP/USD remained capped by former support turned resistance at 1.40 on Thursday as a positive UK GDP report failed to lift Sterling’s spirits. The data showed that Britain remained the fastest-growing G7 major economy in the fourth quarter with growth of 0.5% but ‘Cable’ remained close to multi-year lows.
The Pound then tumbled by over a cent to strike a new seven-year low on Friday as traders reacted to better-than-anticipated US data showing that the world’s largest economy expanded at an annualised rate of 1.0% in Q4. Analysts had anticipated a lower reading of 0.4%.
30-Year Lows in Sight
The recent plunge in Sterling confidence means that traders have started preparing for further falls in GBP/USD. 1.35 stands out as the next key support level, a rate not seen since Thatcher’s reign in 1985.
The two key events to look out for this week are the UK service sector report and the US non-farm payrolls print. British services are expected to slow from 55.6 to 55.1 and the US labour report is predicted to print at 193,000, up from 151,000 previously.
So, with data likely to support further Sterling weakness, investors could start eying up a new 30-year low Pound to US Dollar exchange rate over the next few weeks and months.
Heads Up
Summary of major upcoming data releases that we think may move the market.