British Pound (GBP) Grinding Higher– For Now!
The British pound (GBP) has been moving higher of late as risk appetite in the market and the heightened concern over the Euro due to the debt crisis has made it a viable alternative. But is all well in the UK?
Not exactly. Recently the BOE has embarked on an expanded path of monetary easing through further bond purchases which under normal circumstances might weaken the Pound. But other macro events have made the Pound seem “less ugly” than some of the alternatives so it has been getting a nice bounce.
As you can see on the daily chart below, the recent gains in the Pound have just bumped up agains a “double area” of resistance just ahead of both the 50% Fibonacci retracement level and the R1 daily pivot resistance. However, the near-term trend is still higher so we may have some more room to go, before a potential sell-off.
Wednesday’s Euro debt summit could be the catalyst for selling as the UK banks have big exposure to European sovereign debt and if they are required to take a hefty haircut, they may not be part of any European backstop for the banking system. In other words, they may be required to take the losses but may not be re-capitalized like some of the European banks. While this is total speculation on my part, I think Wednesday could have some major implications for the Pound.
