The British Pound saw a huge sell off on Tuesday as GBP/USD tumbled to as low as $1.2089 before recovering some losses at the end of the day.
The United States Dollar (USD) had proved bid early in the London session with many key pairs on the back foot from the off. Across the day however the Pound proved the weakest currency.
The bid in the dollar was the result of traders looking towards an increased possibility of a rate hike from the US Central Bank. With two meetings left before the end of the year, the expectation is that at least one of these will see an increase in rates. The odds are now around 68% that the Fed will raise rates in December. This is up following Fridays NFP report.
Having corrected early into the New York session from early falls, the GBP/USD fell heavily in the afternoon session. Additional selling pressure came from cross pairs. GBP/JPY in particular fueled further selling in Sterling. Additional pressure came from a ‘risk off’ sentiment as key US financial indices pulled away from recent highs.
Brexit Fears
Fears of the implications of Brexit for the UK economy have also not left the market. Testimony from Anil Kashyap hinted that Sterling could fall further in the case of a ‘hard Brexit’. He voiced concerns of the implications of losing financial business, indicating that Sterling would ‘weaken’ if this was the case.
The loss to the UK economy in the event of this scenario was put at £66 billion per year in tax revenue.
Kashyap, a professor economics and finance at the University of Chicago Booth School of Business was recently appointed to the Bank of England’s financial Policy committee.
Bearish Technicals
From a technical perspective the GBPUSD pair remains strongly bearish. The low set on the ‘flash crash’ of 7th October has not been reached. It is however possible that the stops that were taken out on this move have assisted the subsequent move down.
The pair remains in a firm downtrend. Price is below both the 100 day and 200 day Moving Averages on the daily chart. The low of 1.1911 looks set to be a reasonable target for traders to test in the near term.
On a positive note for traders the weakness of Sterling has seen further gains for the FTSE 100 (FTSE). The market continues to stay bid and near recent highs. Traders may want to look at backing the Index to move higher over the coming sessions if the uptrend continues. A one touch call option could provide a good way of capturing any further upside move.