Morgan Stanley has downgraded its bullish rating on the pound and pointed out that there may be no positive factors for the pound in the near future.
Although the pound might rebound briefly against the dollar after the UK budget on Wednesday, several strategists, including David Adams, said in a note on Thursday that the gains could soon fade. They added that the currency pair’s appeal has been undermined as its correlation with equities has dropped to zero and there are no positive local economic drivers in the short term.
With the budget announcement, we think the pound may have one last chance to rise – the unwinding of budget hedges – but ultimately, there are just too few reasons to hold a long position in GBP/USD, strategists wrote.
Morgan Stanley said that in the long run, a moderate interest rate cut by the Bank of England would help alleviate the negative factors facing the pound, as a loose policy might create more fiscal space. Moreover, lower borrowing costs could also boost household consumption and business operations.
Strategists wrote: “Perhaps as the Bank of England’s rate-cutting cycle nears its end, economic growth rather than carry will become the key currency driver for the pound. If rate cuts help boost the economic growth outlook, there could be significant room for a shift in market sentiment that is currently still pessimistic about the pound.”
Similarly, Jefferies expects the rally of the pound to be short-lived and believes that there is still room for the pound to weaken further.
Looking ahead, we believe that the persisting fiscal vulnerabilities make a steepening strategy more attractive as the market continues to price in the risks of fiscal slippage and structural imbalances, wrote economist Modupe Adegbembo in a report. Technical analysis:
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Gold: Previously, our operation of the green area buy limit in the plugin has achieved a profit-to-loss ratio of more than 1:1. Meanwhile, with several breakthroughs of the resistance level at 4165/70, further rebound space has been opened up. However, due to the holiday today, liquidity may weaken, and we need to confirm the pullback strength before continuing to buy. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
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The Nasdaq: During the holiday period, liquidity is low, and there are no large orders willing to push up prices. For the day, continue to focus on clearing liquidity around 25,200 and capturing rebound signals. For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
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Crude oil: The blue zone we recommended earlier broke through 58.75 and then a buy limit was placed, resulting in a very perfect outcome with a profit-to-loss ratio of over 2:1. After partially taking profits from the long positions today, it is recommended to continue holding and wait for the guidance at the end-of-month meeting. If it is confirmed that there will be no increase in production, there may be continued upward momentum next week. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
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