FXStreet (Moscow) - The weakness of the pound looks surprising, as just a couple of weeks ago the market was absolutely sure the BOE is on the tightening path. All the data screamed about the growing pace of the British recovery with the GDP reaching levels not seen from 2007, the Industrial Production being in uptrend from March, 2012 and the ILO Unemployment Rate slid to the lowest since March, 2009. However, there were three factors combined that put the currency under pressure.

First, and the key one – the pair was deeply overbought as investors priced in the possibility of earlier tightening from the BOE. For instance, in early June when the cable reached 1.7190 area, speculative long sterling positions according to the CFTC data neared highest level since 2007. The turnaround and profit-taking was inevitable.

Second, the recent releases from the UK are starting to raise doubts about the further pace of the British recovery. The series of disappointments from PMIs, Industrial Production, Trade data and even Retail Sales made the investors fear the growth has peaked, and will keep slowing in the near-term.

And third, the USD popularity is growing on the back of better than expected economic data with surprisingly strong GDP, and positive trend in labor market. The largely optimistic results from US earning season only support the view – the largest economy in the world is back on its feet.

However, the recent almost 400-pip slide of GBP/USD may be a sign that the first factor is out, and the pair is coming closer to oversold territory. It means that we need bad US data, or strong UK data to trigger the broad rally of the pound, and the coming week may bring such opportunities.

Related Articles
  1. Forex Education

    Four Currencies Under the Spotlight in 2016

    With currencies having become the “tail that wags the dog,” in terms of their impact on the global economy, these four currencies will be under the spotlight in 2016.
  2. Forex Fundamentals

    These Currencies Are The Biggest Losers Of The Stock Downturn

    Here’s a list of the hardest-hit currencies amid the global stock market mayhem.
  3. Forex Strategies

    Will the Euro Continue to Rally? (EUO)

    The euro is rallying. Should investors chase this performance or is the real opportunity on the other side of the trade?
  4. Investing News

    China’s Forex Reserves Dropped Significantly

    China’s forex​ reserves dropped by a record $93.9 billion at the end of August to $3.56 trillion because the Central Bank has been selling dollars to provide a cushion to the falling yuan​
  5. Forex

    The Pros and Cons of a Fully Convertible Rupee

    Amid the rising economic power of India, the talks of making the Indian currency fully convertible are gaining momentum. We look at the pros and cons.
  6. Forex Fundamentals

    Chinese Yuan an Unlikely Reserve Currency

    As the world's second largest economy, China's challenge to America’s dominance includes a push to make the yuan (RMB), the world’s reserve currency. Whether it can do that now is unclear.
  7. Economics

    How Currency Enforcement Helped Sink The Trans-Pacific Partnership (TTP)

    One particular barrier to trade that has received much attention of late and caused delays in negotiations of the TPP is exchange-rate manipulation, by which a country artificially devalues its ...
  8. Forex

    Top U.S Forex News Sites

    Breaking news moves forex markets. Here are the top U.S. sites for tracking forex news.
  9. Investing

    Financial News Comparison: Bloomberg Vs. Reuters (BAC, GOOG)

    Access to financial information has grown with the expansion of digital news. Bloomberg and Thomson Reuters lead the pack, claiming a majority of the business information market.
  10. Economics

    Who Benefits From South Korea's Lowered Interest Rates?

    South Korea is the latest country to cut interest rates in an attempt to stimulate economic growth.
Trading Center