GBP / USD Fundamental Analysis Monday 29 June 2009

By: Bill Doody
In early trade, the British Pound reached eight-month highs based on market optimism that an end to the recession will occur sooner rather than later. Positive data concerning prices of home sales and consumer confidence in the UK helped drive the Pound as high as $1.67 before backing off somewhat.

We would caution traders to take a less optimistic view of the GBP / USD trade going forward through the summer. Based on negative revisions to first quarter GDP, the UK economy has declined at a yearly rate of -4.9%. There is likely to be more negative economic data ahead, considering that unemployment does not seem to have reached a trough as of yet. Meanwhile, political instability is certain to play a factor in GBP trade, as Prime Minister Gordon Brown continues to be extremely weak and an election is certain within a year’s time. The prospect of an early election could roil the currency trade. The Dollar stands to benefit from the potential of better-than expected payroll and unemployment information to be released Thursday. Likewise, the consensus among traders is that the U.S. will be the first major economy to emerge from the recession, giving the Dollar an edge over its peers.

Traders should keep in mind that Friday will be a bank holiday in the United States.