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GBP/USD: Cable loses traction as dollar regains momentum

H.S. Borji
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The British pound declined against its US counterpart Thursday, falling off a fresh two-week high as the greenback reasserted its dominance amid a dearth of economic data.

The GBPUSD fell below the 1.5800 handle, touching an intraday low of 1.5741. The pair would subsequently consolidate at 1.5756, declining 0.23 percent. Cable had reached a high of 1.5823 earlier in the day before receding. Cable has plummeted more than 8 percent since the beginning of July in what analysts have described as a clean downward move.

The outlook continues to favour the US dollar, suggesting the GBPUSD could test a low of 1.5250, according to some analysts. If prices can swing back above the psychological 1.6000 level, the pair may find a new intermediate floor to launch a minor recovery, although this is unlikely to occur given the stiff resistance ascending from 1.5850.

The technical and fundamental pictures suggest cable still has room for weakness. The pair has traded comfortably above 1.50 since the middle of 2010. A fall toward the 1.5250 region would expose the lowest levels since July 2013.

Meanwhile, the US dollar was broadly supported Thursday. The US dollar index, a weighted average of the greenback against a basket of competitor currencies that includes the British pound, edged up 0.17 percent to 87.76.

The greenback suffered a setback Wednesday on the heels of disappointing economic data, headlined by a sharp fall in core durable goods orders.

The United States had no data to report Thursday, as the markets paused for Thanksgiving. The UK calendar was also idle, as investors looked ahead to reports from GfK and Nationwide.

GfK on Friday will report on British consumer confidence. The closely followed gauge is expected to show only minor improvements in consumer sentiment. Last week the Office for National Statistics said retail sales rebounded in October, a sign Britain’s consumer-led recovery may come to the rescue and take heat off the sagging manufacturing sector that has been hit hard by the slowdown in Europe.

Retail sales increased 0.8 percent in October, rebounding from September’s 0.4 percent drop. Year-on-year, retail receipts jumped 4.3 percent. Excluding fuel, retail sales also advanced 0.8 percent following a 0.3 percent drop in September. This translated into an annualized gain of 4.6 percent, official data showed.

Consumer spending has been the bedrock of the UK recovery, which began in the middle of 2013. The recovery has been propelled by a rapidly improving labour market, although slow wage growth has been a source of concern. Stagnant earnings growth has sparked doubts about when the Bank of England will begin normalizing interest rates. The BOE earlier this year downgraded its wage outlook and said inflation could fall further below the 2 percent target in the medium-term.

Separately, Nationwide will release the housing price index Friday. UK house prices are forecast to increase 0.3 percent in November, down from the 0.5 percent pace in October. Year-on-year, prices are expected to rise 8.6 percent, down from the previous month’s 9 percent pace.

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