GBP/USD oversold but fundamentals favour further weakness – MUFG

MUFG Research discusses GBP tech, quant and macro outlook.

“Unsurprisingly technical indicators are signalling that the GBP is now heavily oversold against the USD in the near-term which increases the likelihood of a temporary relief rally. The 14-day RSI has reached its lowest level since March 2020. At the same time our short-term regression model is signalling that cable has overshot fundamental drivers to the downside,” MUFG notes.

“… The fundamental outlook continues to favour further GBP weakness. A cautious message from the BoE should support a weaker GBP in the week ahead. The GBP could also face further selling pressure following local elections scheduled later this week on 5th May. If the Conservative party performs even more poorly than expected, the results will increase the likelihood that Prime Minister Boris Johnson faces a vote of no confidence. Recent reports have claimed that it could only take another eight MPs to submit letters of no confidence to trigger a vote. A pick up in political uncertainty would add to current bearish sentiment towards the  GBP 
GBP

The Great British pound (GBP) or pound sterling is the official currency of the United Kingdom, Jersey, Guernsey, the Isle of Man, Gibraltar, South Georgia, and other pacific territories.The GBP is currently the fourth most-traded currency worldwide in forex markets after the US dollar, euro, and Japanese yen.As the oldest currency in continual use, the GBP holds great weight on the world market and is also the fourth largest reserve currency.The Bank of England (BoE) is the central banking authority responsible for the curation of the GBP, issuing its own banknotes, as well as regulating the issuance of banknotes by private banks in both Scotland and Northern Ireland. What Factors Affect the GBP?Like any widely traded currency there are several factors that affect the GBP. As is often the case, monetary policy is extremely impactful. Any announcements or policy decisions by the BoE are always closely watched given its potential to move the GBP.Additionally, consumer prices (CPI) in the UK as well as levels of inflation carry a lot of weight and routinely affect the value of the GBP in forex markets.Other metrics of note include measures of gross domestic product (GDP) in the UK or growth, consumer sentiment, or confidence.Most recently, the drama surrounding Brexit as well as the potential fallout of negotiations have added another layer of uncertainty to the GBP.The UK at the time of writing is headed for a historic schism with Europe, though a deal has not yet been agreed upon with both sides unable to come to an agreement.With a smooth resolution nowhere in sight, any developments or an eventual finality to Brexit will be extraordinarily important to both the short- and long-term value of the GBP.

The Great British pound (GBP) or pound sterling is the official currency of the United Kingdom, Jersey, Guernsey, the Isle of Man, Gibraltar, South Georgia, and other pacific territories.The GBP is currently the fourth most-traded currency worldwide in forex markets after the US dollar, euro, and Japanese yen.As the oldest currency in continual use, the GBP holds great weight on the world market and is also the fourth largest reserve currency.The Bank of England (BoE) is the central banking authority responsible for the curation of the GBP, issuing its own banknotes, as well as regulating the issuance of banknotes by private banks in both Scotland and Northern Ireland. What Factors Affect the GBP?Like any widely traded currency there are several factors that affect the GBP. As is often the case, monetary policy is extremely impactful. Any announcements or policy decisions by the BoE are always closely watched given its potential to move the GBP.Additionally, consumer prices (CPI) in the UK as well as levels of inflation carry a lot of weight and routinely affect the value of the GBP in forex markets.Other metrics of note include measures of gross domestic product (GDP) in the UK or growth, consumer sentiment, or confidence.Most recently, the drama surrounding Brexit as well as the potential fallout of negotiations have added another layer of uncertainty to the GBP.The UK at the time of writing is headed for a historic schism with Europe, though a deal has not yet been agreed upon with both sides unable to come to an agreement.With a smooth resolution nowhere in sight, any developments or an eventual finality to Brexit will be extraordinarily important to both the short- and long-term value of the GBP.
Read this Term,” MUFG adds.