Has Sterling “Bottomed Out” Against the Dollar?

5857715454_a403fc6c42_bEver since the UK voted to leave the European Union on the 23 June 2016 the pound to dollar rate has slumped and at one point reached a 30 year low. This may, however, not continue for a great deal longer, it appears that the pound has now “bottomed” against the dollar and some reports are suggesting that analysts were far too pessimistic about the impact of Brexit. This poses the question – is it time to buy sterling?

The answer is of course unclear, but in light of recent news such as good employment and inflation data and the growth in UK retail sales during the month of July, it would appear that the UK economy is slowly heating up. The growth in sales, which was announced on 18th of August and acted as a catalyst for a sharp rise in the pound against the top ten currencies in the world.

This offers up a tantalising prospect for traders working in the financial industry and for independent traders who use online trading platforms. Western Union analyst Joe Manimbo was quoted on the Pound Sterling Live website as saying “The pound’s rise forced many to unwind some of their short positions which are bets on further weakness”. Manimbo, however, continued with somewhat cautionary words, “Still, the pound’s poor underlying bias will leave it susceptible to being sold on rallies, suggesting limited room to the upside”.

News regarding the uncertainty of interest rate rises in the US also seems to have added to the pounds newfound momentum. Mark Nash, head of global bonds at Old Mutual Asset Managers Plc, was quoted by Bloomberg as saying “We are bullish sterling at least in the near term because the market has priced a lot of bad news and the data this week surprised on the upside – which suggested post-Brexit economy might not be as bad as feared”. Nash continued, “Confusion in the Fed also helps to see a weaker dollar down the line.”

The pound was around 1% up on the dollar by 5pm on Friday 19th August, but earlier in the day had showed some signs that it is still vulnerable to sensitive news. An announcement from UK Prime Minister Theresa May that earmarked early 2017 as a possible juncture at which to trigger Article 50 was enough to see a sharp slide in the price of the pound against the dollar – the pond, although, did rally somewhat before the close of trading.

So what is to taken from all the recent news and activity surrounding the price of the pound against the dollar? First of all, the consensus seems to be that the pound has bottomed out and that in the short term at least we may see it continue to grow stronger. In the long term however, it would appear that the pound is not out of the woods and that 2017 may see it hit turbulent waters yet again. From an investor’s perspective this may present an opportunity for short-term gains from buying sterling and then capitalising on the volatility that is surely to follow.

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