Sterling increasingly pressured towards new long-term lows

August 12, 2016

The Bank of England’s interest rate cut to a new record low of 0.25%, and other stimulus measures implemented by the UK central bank last week in response to June’s Brexit decision, prompted even more pressure on sterling than had already plagued the struggling currency.

After last week’s rate cut, the British pound fell swiftly against its chief rivals – the US dollar, euro, and yen – prompting the pound to re-approach its recent long-term lows against these other major currencies.

As of this writing, GBP/USD has dropped below the key 1.3000 psychological level, which has opened the way for a further potential fall towards July’s post-Brexit 31-year low of 1.2795. Similarly, sterling has continued to fall precipitously against the euro, as EUR/GBP rose further on Thursday to re-test July’s multi-year high of 0.8626.

Even more so than GBP/USD and EUR/GBP, however, the currency pair that has arguably been affected most severely in the post-Brexit environment has been GBP/JPY. From the exceptionally sharp Brexit-driven dive in late-June to the current slide since late-July, GBP/JPY has mostly shown a singular bearish bias that has been even stronger than many have anticipated. This has been due both to tremendous pressure on the pound as well as a consistently strong Japanese yen that was helped along initially by its status as a safe-haven currency during post-Brexit volatility.

GBP/JPY now appears likely to continue its robust downtrend that has been in place for more than a year. The currency pair has currently extended its recent slide to approach major support around the psychologically-significant 130.00 level, which is in the vicinity of July’s multi-year lows. A strong breakdown below 130.00 would result in a further extension of the year-long downtrend, with the next major downside target around the key 125.00 support level.

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