GBP/USD Daily Fundamental Forecast – August 28, 2017

The GBPUSD pair has been managing to stay afloat mainly due to the weakness in the dollar over the last week or so and even on Friday, it was more of the same as the pair managed to move up on the back of weakness in the dollar and also due to the fact that the EURUSD pair began its next leg of its bullish run and the pound was able to piggy back on the ride. The pound had broken through the support region around 1.2860 and made it below 1.28 for a brief while during the course of last week.

GBPUSD Survives Due to Dollar Weakness

But we had mentioned that the break through such an important support region did not lead to a large move and did not seem to have much of a force behind it and hence were skeptical of the move and this proved to be right as the pair managed to recover back above the support region after the speeches from Yellen and Draghi. A lot was expected from these speeches but they turned out to be repetitions of what the markets already know and hence served to disappoint the traders.

But, for the dollar, what was key was the fact that Yellen had chosen to ignore the dollar once again. We had been saying many times that the Fed had basically stopped propping up the dollar and this seemed to be a deliberate policy to keep the dollar weak and this was proved once again on Friday as Yellen did not focus on monetary and left the dollar at the mercy of the markets and to the incoming data. This led to dollar selling which helped the GBPUSD pair to recover.

Looking ahead to the rest of the day, it is a holiday in the UK and so we can expect the volatility and the liquidity to be low. But these are last few days of the month and so a lot of month end currency flows are to be expected. Even if the GBPUSD pair manages to bounce, it would only provide a good opportunity to sell the pound against the 1.3030 region.