Monetary divergence between the US and UK central banks is generating a bearish sentiment on the GBP/USD currency pair, a prominent currency watcher has warned.
Over the last two months, the US dollar has surged against the pound. While the Bank of England (BOE) continues to keep any plans to raise interest rates in abeyance, possibly until 2017, the US Federal Reserve Bank could well follow December’s historic rate hike with another, perhaps as early as March.
With October’s British Manufacturing Production indicator coming in at -0.4 percent, well below the predicted -0.1 percent, the UK economy does not appear to be performing as strongly as that of the US. With the monetary divergence between the two banks, the USD is well poised to go on making further gains against the pound, which many analysts consider to be overvalued.
For those beginning to learn Forex trading, the British Manufacturing Production indicator tracks changes in manufacturing output and in the turning of inventory. For the UK, manufacturing is a pivotally important sector of the economy, with strong readings indicating economic growth.
October’s disappointing results were expected to improve, with markets and analysts forecasting a 0.1 percent outcome in November. When the indicator’s results are within expectations (within a range of -0.2 percent to + 0.4 percent), the GBP/USD has the possibility to rise within range, with a slight potential of breaking higher.
However, when the figures are below expectations (-0.7 percent to -0.3 percent), the GBP/USD is at risk of losing one level of support. With a change of less than -0.7 percent, the pair is almost certainly pushed downwards and quite likely to break a second level of support.