GBP/USD Daily Fundamental Forecast – January 18, 2017

It was all about the pound and the dollar yesterday and with both going opposite to each other in terms of strength, we saw some very large volatility in the GBPUSD pair, some which we had mentioned in our forecast. The speech from the UK PM May helped to clear some of the risks and the confusion surrounding the Brexit process and this helped to calm the markets and the investors who then began to show their love for the pound and with that, the global fears and risks seemed to recede somewhat. This caused the removal of funds from the USD, which is considered as a safe haven, and this in turn weakened the dollar and the full effect was seen in the pair.

In yesterday’s speech, the UK PM May made it clear that the UK would be heading for a hard Brexit and they would also be going in for a full and clean exit from the Eurozone with no access to the free trading zone. But she also made it clear that the UK government would be negotiating hard with the Euro leaders for a different kind of unrestricted access to the Eurozone market so that the trade can continue uninhibited which would be helpful for both the UK and the Eurozone. This helped to calm the markets and clear some confusion surrounding the Brexit process and this helped to add volatility in the pair. We saw the pair make a low of 1.2015 before the speech but it reached a high of 1.2414, a range of almost 400 pips in a single day, a huge gain in terms of percentage.

Though the market may be happy at the moment, the risks around the Brexit process continue to exist and the negotiations and other processes that are likely to follow the invocation of Article 50 is something that is still unknown and still something that could pose a risk. This should keep the pressure on the pound in the medium term.

Looking ahead to today, we have the average earnings and the claimant count change from the UK and the CPI data from the US that will be released later on and it remains to be seen whether all these data continue to remain strong which has been the trend over the last few weeks as far as the UK and the US are concerned. If the UK data comes out strong, we could see the GBPUSD pair make a move towards 1.2500 but we do not see the pair making a clean break of this region as yet.