How Low Can You Go

Sterling hasn’t seen a week as bad as last week for a long, long time and the outlook doesn’t look any rosier either. Cable (GBP/USD) recorded a new six month low on Monday after dropping to 1.5674, and GBP/EUR has continued to fall, hitting a new twelve month low yesterday at 1.1618. Sterling is continuing to suffer following a number of negative data releases last week. All in the same week we saw substantially weaker than expected UK GDP figures of -0.3%, fears of a triple dip recession, and David Cameron confirming his commitment to a referendum on Britain’s membership within the EU, all of which contributed to increasing uncertainty surrounding the UK economy and therefore a weaker pound.

Sterling has suffered right across the board recently, weakening against all major currencies last week. However, the pound has suffered the most against the Euro as weak UK data combined with the ever improving sentiment regarding the condition of the Eurozone and Europe as a whole (mainly because of data confirming that Germany is still an economic powerhouse) has sent GBP/EUR into free-fall. The pair fell to, and held at, a key level of support of 1.1722 on Friday before breaking this level on Monday. The pairs decline has continued throughout this week and a new twelve month low was reached on Thursday, before the pair recovered slightly to its current level of 1.1650.

Cable has fared slightly better in the past few days after a similarly horrific drop last week and early this week. The pair is currently trading at 1.5790 after hitting a key level of support, and a six month low, of 1.5674 on Monday before bouncing back up. GBP/USD is likely to target the next key level of resistance at 1.5911, however should momentum turn back to the downside, we could well see the pair drop back off to below 1.5675.

We could see significant movement in the markets tomorrow as economic data will be released in China in the early hours of tomorrow morning. Chinese Manufacturing PMI figures could increase volatility due to the emphasis that is placed on the Chinese economy’s role in the global recovery. Tomorrow is also everybody’s favourite Friday of the month – Nonfarm Friday. US Nonfarm Payrolls will take on greater importance tomorrow after US GDP figures released yesterday surprised markets by showing that the world’s largest economy had contracted 0.1% in the final quarter of 2012.