Pound May Drop to 1-Week Low Against Dollar: Technical Analysis

(Bloomberg) -- The pound may drop to the lowest level in more than a week against the dollar if it closes below its 20-day moving average, Brown Brothers Harriman & Co. said. Britain’s currency may fall to $1.60, the weakest since June 9, Marc Chandler, global head of currency strategy in New York, said today in an e-mail. The pound slid 1.1 percent to $1.6226 as of 1:16 p.m. in London. It earlier fell through the 20-day moving average of $1.6223.The worst recession since at least 1979 led Standard & Poor’s to revise its outlook for the U.K. to negative from stable last month, saying a AAA credit rating is incompatible with debt heading for 100 percent of gross domestic product. The Treasury expects to sell an unprecedented 220 billion pounds ($358 billion) of gilts in the year that began in April to revive the economy.

“The concern about the U.K. debt position is something that may come back, and that’s going to stay here in the near term,” Audrey Childe-Freeman, a senior currency strategist at Brown Brothers in London, said yesterday in an interview. “We’ve seen the dollar doing better in the context where we’ve seen a shaky environment in the equity markets and risk appetite. Sterling is very much influenced by such forces.”U.K. stocks fell for a second day after retail sales unexpectedly declined in May. The FTSE 100 Index dropped 0.6 percent to the lowest level since May 1.The pound will fall to $1.61 by year-end, according to the median forecast of 41 strategists surveyed by Bloomberg News.A moving average is a technical indicator that displays the average value of an index or security over a period of time. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.