2013-04-17

$GBPUSD $6B_F : Mighty Pound could be in trouble

Sterling is looking seriously week on longer term time frames.

1.4525 area as possible next target with further downside possible.


Before 1944 British Pound was once the reserve currency of the world. Today less than 4% of worlds reserves are kept in GBP but even that makes it the third major currency in the global reserves game. But progressively British world dominance has declined together with decimation of its industrial base and over reliance of the economy on financial services. After hitting a peak of 2.1160 (not all time high but high in last 20 years) Sterling has progressively given ground against US Dollar and during the 2007-2009 financial crisis it plunged as low as 1.3502. Since then GBP has been in a very tight range for last 4 years failing to move either way out of the range. Here is a weekly chart of GBP since Oct 2007.


As can be seen, after downgrade of UK's coveted AAA rating, GBP has decisively broken out of the range and on longer term perspective looking very weak. Bank of England has grown its balances sheet the most since the financial crisis began (in % terms) and it appears it would still need to do more. The possible downside targets are 1.45-1.39 area and possibly further down if the trend is maintained.