Top Reasons Supporting Further Pound Weakness

The past several days had been very bearish for the Pound as the risk sentiment deteriorated abruptly once the Brexit saga took another bad turn. Since the impulsiveness of the move had generated the strongest selling leg since March, there are multiple reasons to believe that the currency will continue to fall in the near against most of its major peers. We were beginning to see a retreat in risk currencies since a week ago but based on how things are positioned right now, the Pound is in a very bad place.

pound weakness
Source: Reuters

# “No-deal Brexit” risks intensify

Everything started to head south impulsively once the UK announced a new bill proposal that will allow the government to make changes to the already-agreed withdrawal agreement. That had sparked frustration from Brussels, which had not given an ultimatum until the end of September so Britain will give up on any further steps with the bill. However, the debate on the law will start on September 14th and this will keep the pressure on the Pound.

# US dollar rebounds from the lows

When most of the analysts were predicting more pain for the US dollar, the buck slapped them on the face and started to move higher. Combined with renewed pressure on risk currencies, this had been another drag on the Pound. As long as the downside in the dollar will be limited, there’s no point to believe that market participants will start to get exposure on the Pound, especially now that Brexit had returned as a leading market drag. It would be interesting to see what happens in case the dollar weakens further. Will the Pound spike higher or just start a corrective move?

# Cautious risk sentiment during autumn

Several weeks ago we’ve mentioned the 1.30 level in the GBPUSD and after the market had breached above it, sellers resumed in force, generating a false-break setup. From a fundamental point of view, this suggests the elevated price levels were no longer sustainable and a retracement was needed.

At the same time, it shows that caution is the rule of the game during autumn, as several risk factors will weigh on the investors’ appetite. Alongside Brexit, we should not forget the US election and rising COVID-19 cases across countries that had the spread under control during the past few months. The combination of these factors is putting a dent on risk continuing to march higher, so you should also monitor them because big headlines will be market movers.

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