Market News & Analysis

Top Story

Pound Through $1.21 On Heightened Recession Fears

The pound is under pressure as fears grow that the UK economy could be heading for the first recession in a decade. 
UK GDP made for grim reading as official figures showed that the UK economy contracted in Q2. A toxic combination of Brexit uncertainty, the running down of Brexit inventories built up prior to previous Brexit deadlines and the closing of car plants, resulted in the UK economy contracting 0.2% in the second quarter. Growth of just 1.2% is expected across the year, down from 1.8% and short of expectations.

Given that the next Brexit deadline is 2 ½ months away, there is still time for looming Brexit jitters to continue negatively impacting the economy. This means a second consecutive quarter of contraction and therefore a technical recession is now a very real possibility. Adding to the pound’s woes, industrial production and manufacturing figures also missed expectations by large margins.

The outlook for the pound remains extremely fragile as the prospect of a no deal Brexit increases. With the blame game between the EU and the UK in full swing, the chances of the two sides renegotiating the Irish backstop appears slim; instead preparations for a worse case scenario, no deal Brexit are being prioritised. Add into the mix decidedly gloomy UK fundamentals, with little prospect for improvement in the near term and its easy to see why the bears are controlling the pound.

GBP/USD Levels to watch:
The pound has broken down through $1.21 and is looking towards support at $1.2080. A breakthrough here could open the door to support in the region of $1.2030 prior to the psychological level of $1.20. On the upside, resistance can be seen at $1.2180 ahead of $1.2200.


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.