GBPUSD:
The pound remains under pressure as consumer spending and the labor market in the UK are weakening, reducing the likelihood of an aggressive response from the Bank of England. Core inflation has dropped to 3.3% y/y – the lowest in two years – allowing the regulator to keep rates steady for longer.
External factors are also unfavorable: demand for the defensive dollar is strengthening ahead of the FOMC meeting, and the yield spread between 10-year gilts and USTs has narrowed to 115 basis points – the lowest since March, stimulating flows into the dollar.
Additional negative dynamics come from the rise in the UK current account deficit to 3.9% of GDP, amid higher prices for imported energy and declining exports of services. Expectations of tighter fiscal consolidation are increasing fiscal risks and encouraging investors to reduce long GBP positions.
Risks to the bearish outlook are limited: these would be a surprise in the form of hawkish Bank of England comments or a sharp deterioration in US macro data that could weaken the dollar.
Trade recommendation: SELL 1.3270, SL 1.3290, TP 1.3170
Origin: FreshForex
