Supreme and UK Politics Weigh Pound Sterling Falls as Dollar Reigns

Pound Sterling was among the biggest fallers in the face of the strong greenback as markets steered away from the currency in light of reports the Scottish government is preparing a fresh push for independence and amid speculation over another possible general election in the UK this August.

“It’s worth addressing the politics head-on – as this is fast-becoming the factor that is keeping us most awake at night,” says Viraj Patel, an FX strategist at ING Group. “While both remain just noise at this stage, these fresh political hits could keep sentiment for GBP dented in the near-term.”

Sterling was quoted 0.34% lower at 1.3414 against the US Dollar during the morning session, making it the second biggest faller against the US currency after the safe-haven Japanese Yen, after falling below a key long-term support level located around the 1.3450 area.

This corresponds with the 38.2% retracement off of the October 2016 low to the April 2018 high. It is a level that has survived multiple tests throughout the month of May, before it gave way Monday morning. One analyst says the exchange rate could now see further losses during the days ahead.

“GBP/USD has eroded the 1.3458 January low and is in new lows for the year. It has ignored the divergence of the daily RSI and the 13 count on the chart and the 78.6% retracement lies at 1.3319 and we assume that is where it is heading. The 55-week ma lies at 1.3400,” says Karen Jones, head of technical analysis at Commerzbank.

The Pound-to-Euro rate was 0.14% lower at 1.1420 Monday, much like all other Sterling exchange rates barring the Pound-to-Yen, as the British currency has fallen at a faster pace against the US Dollar than all others barring the Japanese currency.

However, Jones says any weakness in the Pound-to-Euro exchange rate should not last for long:

“EUR/GBP’s outlook stays negative while capped by its downtrend from August last year at .8836 and its 200-day ma at .8863, and we maintain a negative bias while capped here. We will continue to target .8526, the 78.6% retracement of the move from 2017,” Jones writes in a morning briefing, referring to a target that translates to a Pound-to-Euro rate of 1.1728.