GBP and EURO looking overvalued against the US Dollar

July 23, 2013 in Forex Articles

Last week’s Bank of England minutes pushed Sterling sharply higher against the US dollar  as The Bank of England’s monetary policy committee voted 9-0 to leave interest rates and quantitative easing unchanged.

This sharp rally in Sterling should be used as an opportunity to short the pound again against the US dollar. Sterling has continued to make headway and earlier today was trading at 1.5380, it has since fallen back a little and currently trading at 1.5370. This rally in Sterling from 1.48 USD in the first week of July to the current level is a  good entry level to open short positions in the pound. GDP figures out on Thursday will be influential in determining Sterling in the short-term but a lot of good news for Sterling has already been factored in and there is plenty of room for disappointment. The 1.50 USD level should be broken before the month is out again.

The Euro has had a strong rally against the US dollar in the last couple of weeks rising from 1.28 USD to the current level of 1.32 USD. This rally in the Euro should be an opportunity to go short again. Europe is still in a mess and the rally in the Euro is baffling. In recent week’s Portugal has struggled  to come up with a plan to cut its deficit and could need another bailout. Spain is still in recession and uncertainty in the political situation in Italy is of concern once again. Elections in the powerhouse of Europe – Germany in the next few weeks will also start to cause anxiety in the markets. It should not be too long before the Euro is trading below 1.30 USD again.

The Eurozone crisis could reignite over the summer as political clashes and a weak commitment to austerity could scare the markets and the US dollar will be sought which no doubt will not only weaken the Euro but also Sterling. Continue to buy the USD on any weakness and sell the British pound and Euro against the greenback.

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