Currency Analyst since 2010

GBP/USD: outlook for October 3-7

GBP/USD remained within the range of the previous week between 1.3055 and 1.2915. The UK’s large current account deficit leaves the currency highly dependent on foreign exchange inflows. The pound is affected by Brexit woes as well as subdued investor sentiment related to concerns over the health of Germany’s Deutsche Bank and Commerzbank.

So far the economic figures from UK haven’t been bad. On the contrary, Q2 GDP growth was revised up from 0.6% to 0.7%. Next week Britain will release manufacturing, construction and services PMIs on Monday, Tuesday and Wednesday and manufacturing production on Friday. US labor market figures on Friday will also add to the pair’s volatility.

The pair’s consolidating at the lower edge of its 3-month range. The area corresponds to the multiyear minimums of the British currency, so it will take strong drivers to pull the pair significantly lower. Still, there’s scope for more decrease to 1.2865 (August low) and 1.2790 (post-Brexit low) on the close below 1.2900. We stick to the view that it will be hard for the sterling to show any significant recovery. The pound looks weaker than other currencies against the greenback. Resistance is at 1.3000, 1.3115 and 1.3180/1.3200.

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