GBP/USD Monthly Fundamental Forecast – December 2016

Despite the tight range in GBPUSD for last month, what really stood out for all to see was the remarkable resilience of the pound to combat the strength in the dollar. Though the dollar was weak immediately after the results were announced for the US Presidential elections, the dollar began to strengthen a great deal all across the markets after that and it was a rout against certain currencies like the euro and the AUD. But amidst all this turmoil, the pound managed to stand like a rock and the result was a low monthly range for the pound as it spent most of the time trying to range and consolidate mainly between 1.2300 and 1.2600.

Even the continuing improving data from the US didnt do much against the pound and one of the main reasons being attributed to this is that the market realises that with Trump winning the elections, strange results like the Brexit vote and the Trump victory are likely to be the order of the day going forward and it is better that the market gets used to it rather than it trying to fight this growing trend. Also, the Brexit process became more regularised when the High Court ruled that a debate needs to happen in the Parliament before Article 50 is invoked and this helped to move the control of the process from UK PM May and her government and into the hands of the Parliament and this helped to calm down the markets and view the pound in better light.

Looking ahead to the coming month, we have the Fed meeting in the US which is expected to confirm the rate hike and this is already priced into the markets. The market also expects rate guidance for 2017 and this is where there is likely to be a lot of volatility and the pound could come under pressure at this time. Apart from this, we have the holidays towards the end of the month and so we believe that range trading and consolidation would dominate this pair in December.