British Pound Breaks Downtrend

The British pound saw a significant bullish turn last week against the US dollar and most of its more liquid crosses despite mixed fundamentals. For the benchmark GBPUSD, the pair opened the period by sustaining its steep downtrend. On Monday, like many other risk-related assets across the globe, the sterling was under pressure as traders looked to dump their more precarious investments, including the high-yielding currencies. This broad wave of risk aversion was triggered by the biggest drop in global stocks in over 5 years.

While this move was originally believed to be a mere change in sentiment, the market later learned that a massive unwinding of positions from Societe General, who uncovered a massive book of losing positions under one trader, may have triggered the panic selling. However, after this sharp move, the market slowly but surely started to buy back the sterling and other high yielders after the Fed delivered an emergency rate cut that calmed fears that the world’s largest economy was heading for a recession and would take the rest of the globe with it.

With these sentiment trends in mind, the economic calendar would also play its part in guiding the pound last week. Before the London trading session opened on Monday, the leading Rightmove housing price index confirmed the decade long boom was over. The average home price fell for the third consecutive month, while annual inflation marked its biggest drop since December of 2005. Officials at Rightmove foresaw further declines for the residential market unless the BoE cuts rates further.