GBP/USD might find buyers,
- After stopping out sellers on last Friday with a rise to 1.317 area, the pound failed to hold down on its gains this week, as the return of risk aversion stemming from Sino-American trade negotiations pushed the pound lower. The pound is currently trading at 1.3 against the USD.
- A further downside remains open as the hope of cross-party negotiations failed, which could have helped in securing a modified version of Prime Minister Theresa May’s Brexit agreement passing through the UK’s House of Commons.
Despite the downside risks clouding the pound, our calculations suggest that GBP/USD might actually witness some serious buying at dips once the exchange rate declines to 1.293 area.
The narrowing of short-term yield spread (2-yr) is positive for the GBP/USD bulls. The spread has been narrowing steadily since November. It has declined from -215 bps (US-UK) in November to 155 bps this week.
Moreover, the recent hint from the Bank of England (BoE) that interest could rise is another positive catalyst for the pound.
