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GBP USD continues bearish step down pattern

Article By: ,  Financial Analyst
December 7, 2015 9:19 PM

GBP/USD continues to trade within a bearish step-down pattern, as it has formed a series of progressively lower lows and lower highs for much of the latter half of this year thus far, since the 1.5900-area high back in mid-June.

Since that 2015 high, the currency pair has fallen steadily as firming expectations of a US interest rate hike this year have far overshadowed vague anticipation of a possible UK rate hike at some indistinct time next year, or even later.

While the US Federal Reserve has been decidedly and increasingly hawkish over these past several months, repeatedly hinting at the likelihood of a December rate hike, the Bank of England has remained comparatively dovish-leaning during the same time frame. BoE Governor Mark Carney recently asserted that UK interest rates should remain low “for some time.”

This week and next week will provide further clarity surrounding this discrepancy in monetary policy stances between the BoE and the Fed. Thursday of this week brings the BoE’s monetary policy summary and official bank rate votes. Clearly, no change in interest rates is expected at this time, but the summary should provide the market with some clues as to how the central bank sees the future of UK monetary policy. Any dovish-leaning remarks will likely weigh even further on the pound.

Next week, of course, brings the highly-anticipated Fed meeting, where a decision will finally be announced as to whether or not there will be a US interest rate hike this year. Although much of this anticipation (to the affirmative) has already been priced into the markets and the US dollar, there still should be room for further dollar strength, especially if a potential rate hike is accompanied by a hawkish-leaning statement in light of recent positive economic data out of the US.

 

The most recent incarnation of GBP/USD’s noted stair-step decline was last week’s new seven-month low at 1.4894. Of course, this low was immediately followed by an ECB-driven dollar plunge that pushed GBP/USD back up to a high of 1.5157. But since that lower high was established, a dollar rebound has once again placed the currency pair tentatively back on a bearish track. Any breakdown and continuation of the entrenched downtrend below 1.5000 could likely continue the step-down pattern to target downside price objectives at 1.4800 and 1.4600.

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