Sterling recent strength over?

October 4, 2013 in Forex Articles

After many days of recent gains against the US dollar, Sterling (GBP) has weakened against the US dollar. In fact, the selloff in GBPUSD was so strong that it is close to the psychological 1.60 USD level after being 1.6260 USD only a couple of days ago even though the US is not any closer with regards to the debt limit and resolving the government shut down situation.

The UK economy has been performing well generally and Sterling strength has reflected this. However,  the latest PMI reports suggest that the recovery may be losing momentum. The service sector activity slowed slightly, with the PMI services index falling from 60.5 to 60.3. The index remains near record highs, but combined with the slight declines in the PMI construction and manufacturing reports and the recent weaker than expected UK retail sales figures, it has been enough for some sterling traders to reduce their long positions

House prices also failed to grow at a faster pace last month, according to Lloyds Banking Group subsidiary, Halifax and this has added to some momentum in Sterling selling pressure over the last couple of days.

The pound also lost ground against the USD following a speech in Maryland, USA  by President Barack Obama. The main topic was the on-going US government shutdown and the need to raise the debt ceiling. The president was bullish and the markets notably the US dollar reacted positively to his speech. Has the US dollar bottomed against Sterling?

With the US Bureau of Labour Statistics one of the many government offices to be closed, the monthly non-farm payrolls report, which should have been today’s main event, will not be published. Non-farm payroll figures are probably the most closely watched economic data and create great volatility in both Equity and FX markets. 1.30pm London time today will be a non-event.

With no non-farm data out today it makes it even more likely that the Federal Reserve will hold monetary policy steady at its October meeting with no tapering, as the central bank closely watches labour-market data in making its decision. This is a negative for the US dollar but judging by the last couple of days of selling pressure in Sterling, the US dollar should be able to negate the non-tapering and continue to rally from this over-sold position.

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