1Finance

British Pound Q1 2017 Forecast - Pound to Chart Disparate Path vs. Major Currencies in Early 2017



Fundamental Analysis

• "Much of what happens to the British Pound in 2017 will depend on implementation of the outcome of the Brexit referendum. Markets will have ample fodder for speculation, from the formal initiation of the process pulling the UK out of the European Union and the subsequent negotiation to the indirect influence of uncertainty on the economy."
• "The markets will probably spend the first three months of the year trying to divine what all of this will look like. Against this backdrop, the UK economy will likely start to show the impact of post-referendum uncertainty. This will overlay the political aspects of the situation with speculation about the direction of Bank of England policy."
• "At this stage, investors seem to be trying to game how much inflation has to overshoot the BOE’s target for the central bank to dial down stimulus. If recent UK data proves to have foreshadowed a slump, speculation will instead be focused on how likely it is that Mark Carney and company will have to ease conditions further."

Technical Analysis

• "Heading into the fourth quarter, I had highlighted the GBP/USD range between 1.2800 and 1.3600. The prevailing trend was certainly bearish, but further extending the already-extreme move would require increasingly exceptional conviction. An unexpected Pound flash crash in early October and a renewed Dollar rally after US Presidential election however, struck the correct cord. The question heading into 2017 is whether we can keep stretching the Cable further and further. Looking at the quarterly chart of the pair, we can see how statistically difficult that would be."
• "We need to look at a chart with this scale of historical context to appreciate the fact that we are at a three-decade low. Beyond that, we find that GBP/USD has dropped for six consecutive quarters – only the third time this has occurred and each previous instance marked a significant turning point. Furthermore, this drive represents a decline that is more than two-standard deviations below the 20-quarter (5-year) average."

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