GBP/USD Daily Fundamental Forecast – November 30, 2016

We had mentioned in one of our forecasts last week that considering the strength that the pound has been exhibiting since the end of the US elections amidst all the dollar onslaught, the GBPUSD pair is likely to gain the most if and when the dollar weakness returns and this is what we have been seeing over the past 24 hours. The dollar has traded slightly weaker since the beginning of the week but on Monday, the pound was driven down due to month end flows and payment of EU membership fees and such factors. But yesterday, we saw that there were no such flows and the pound exhibited true strength as it bounced back through 1.2400 and reached as far high as as 1.2540 before some selling kicked in and the pair sits below 1.2500 as we write this and it looks good for more if the dollar weakness continues.

The dollar weakness has been the theme across the markets though the weakness is not uniform against all currencies. The weakness has not been driven by weak data or fundamentals but it is more of a realisation from the markets that the US now has a President who has the habit of shooting off his mouth in the way he wants to and this is likely to always keep the markets on tenterhooks as no one seems to know what he is going to say next. Trump has already gone back on many of his promises that were a large part of his campaign and so the traders and investors are not clear on which of his proposals would go through and which wouldnt and this uncertainty is what is keeping the dollar weak.

Looking ahead to day, we have the bank stress results from the UK and if the banks do well in this, we should be seeing another round of pound strength which should take GBPUSD beyond 1.2500. Later on in the day, we have the ADP Employment data and if the numbers come in weaker than expected, then we are likely to see even more dollar weakness as this data is considered as a precursor to the NFP on Friday.