British Pound Slumps Toward 1.75 - Recovery on the Horizon?

The British pound slumped against the US dollar, as the latter remained strong across the majors.

However, we’ve been saying for days that COT forex positioning shows that the currency remains oversold and other indicators suggest potential GBP/USD buying opportunities, and this has not changed. Meanwhile, for the first time in a while, UK data was surprisingly strong as the Visible Trade Balance unexpectedly reflected a narrowing trade deficit of 7.667 billion pounds in July, compared to 7.993 billion pounds the month prior. The move was the result of a 3.1 percent jump in exports, as a weaker British pound made UK goods more attractive. Nevertheless, the odds are wildly out of favor for the UK economy, as expansion is widely anticipated to slow sharply going forward. This is much of the reason why Credit Suisse overnight index swaps are pricing in nearly 100bps worth of rate cuts by the Bank of England over the next 12 months, and if the official UK CPI numbers (due to be released on 9/16) signal that inflation is not accelerating as quickly as they expected, the central bank could start reducing interest rates before year-end. Thus, from a fundamental perspective, downside risks remain for the British pound, [B]but from a technical perspective, I believe GBP/USD is due for a bounce in the near-term.

Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.[/B]