GBP/USD risks extra losses in the short term

Further weakness should not be ruled out around GBP/USD for the time being, note UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.

Key Quotes

24-hour view: Yesterday, we expected GBP to “continue to drop.” However, we highlighted that “a sustained break below 1.2470 is unlikely, and the next major support at 1.2400 is highly likely to be out of reach today.” GBP fell more than expected as it dropped to 1.2445 before ending the day on a soft note at 1.2475 (-0.26%). While downward momentum has not improved much, GBP could continue to decline. That said, the major support at 1.2400 is unlikely to come under threat. In order to keep the momentum going, GBP must stay below 1.2510 (minor resistance is at 1.2490).

Next 1-3 weeks: We continue to hold the same view as yesterday (07 Sep, spot at 1.2500). As highlighted, we continue to expect GBP to weaken. However, oversold short-term conditions could slow the pace of any further decline, and the next major support at 1.2400 might not come into view so soon. Overall, only a breach of 1.2555 (‘strong resistance’ level was at 1.2605) would suggest that the GBP weakness that started on Monday has stabilised. Looking ahead, if GBP were to break clearly below 1.2400, it could trigger a further decline towards 1.2310.

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