- The British pound has fallen during the trading session on Friday as we continue to see a lot of negativity in the pound overall.
- The 50-Day EMA has offered a nice resistance barrier, especially as the 1.15 level is above there.
- All things being equal, I think this is a market that continues to go lower and it’s interesting to see that we have seen a huge push back on the bullish move from Thursday.
UK Tax Scheme Affecting the Pound
The nonsense coming out of the British government and the entire tax scheme has thrown the British pound all around, and now that we’re starting to see the possibility that the government is going to cut back some of the tax breaks, the rally was short-lived, perhaps over the course of 36 hours. The fact that we could not hang onto the gains for longer than that tells me that the British pound has a very serious problem, and it is likely to continue to see a lot of downward pressure.
The 1.10 level underneath should be supported, but if we were to break down below there, it’s likely that we go down to the 1.05 level. That’s where we bounce from at the bottom, but I do think we break through it. In fact, I think it’s very realistic that the British pound eventually traits at parity to the US dollar. This does not mean that it has to happen overnight, nor does it mean that it has to be quick. However, the market certainly sees quite a bit of negativity out there, and I think that the Federal Reserve tightening monetary policy the way it has should continue to cause the pound and almost any other currency to fall against the greenback.
If we do break out above the 1.15 level, that would be a huge turnaround, but at this point in time I just don’t see the fundamental reason for that to happen anytime soon. It’s going to take inflation falling in the United States for the US dollar to start losing strength again, which is something that we are nowhere near a comfortable level at this point as we are over 8% year-over-year. Keep in mind that the Federal Reserve aims for 2%, therefore we have a lot of work to do before we get to a neutral level.
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