The British pound’s bounce from May’s 14-month lows versus the U.S. dollar has surpassed all my expectations. The currency has stumbled at key resistance points as expected, but the trend upward has been persistent and undeniable. The pound has followed a steep channel straight up.
The pound is now sitting right at its 200-day moving average (DMA) right after marginally conquering its highs from April. Beyond this point, the pound is likely to continue its rally all the way back to its highs for the year and beyond.
Source: dailyfx.com charts
These developments must be making the Bank of England a bit nervous. The BoE has been counting on a weaker currency to bolster exports. (Of course, the U.S. dollar has been just about the weakest major currency since it peaked in June). While the stronger currency may offset some of the stubborn and worrisome inflationary pressures in the economy, a weaker export sector may come at a bad time with the U.K. government actively moving to slash budget deficits.
Talk about an economic bind!
Be careful out there!
Full disclosure: no positions