Although the British Pound managed to appreciate near the end of the third quarter, after the Bank of England adopted a firmly hawkish stance at its policy meeting in September, gains were later reversed by political risk at home.

While a touch of USD weakness has also contributed towards the Sterling’s short lived recovery, further dollar selling would be needed for the pound to be able to conquer what appears to be a ceiling at 1.3600.

Lack of progress in the Brexit negotiations

As we head into the final trading quarter of 2017, UK fundamentals will be in sharp focus as investors closely watch inflation – which continues to outpace wage growth.

With the gap visibly widening between pay and rising prices, concerns remain over the longevity of the UK’s consumer driven economic growth.

I believe renewed political uncertainties concerning Theresa May’s leadership, anxiety over soft economic fundamentals and the lack of progress in the Brexit negotiations, are likely to weigh heavily on sentiment in Q4.

With round five of the Brexit talks getting under way in October and no clear plans on how the UK will break away from the EU, the Pound remains vulnerable to downside risks.

UK Interest Rate to be risen?

While Bank of England policymakers may be commended on their ability to stimulate expectations of higher UK interest rates, this could end tragically for Sterling if this year concludes without a tightened monetary policy.

Although there is a strong argument for higher rates taming inflation, this may end up impacting business confidence and punishing the fragile UK economy.

Even if the BoE raises UK interest rates by +25 basis points in November to quell inflation, markets may not consider this as the beginning of a tightening cycle, as Britain’s macroeconomic landscape remains fragile.

Technical Outlook of GBP

Focusing on the technical outlook, political risk and Brexit uncertainty have sullied investor attraction towards Sterling, with the currency stumbling into Q4 under selling pressure.

With the dollar bouncing back to life amid rising expectations of higher US interest rates, Sterling/Dollar seems to be poised for further downside.

Technical traders will continue to closely monitor how prices react to 1.3150 on the daily and weekly timeframe, which if conquered, should open a path lower towards 1.3000.

With the GBPUSD still pressured on the monthly charts below 1.3600 and in the process of creating a monthly bearish flag, further downside is on the cards with 1.2800 and 1.2500 acting as levels of interest.

In an alternative scenario, if the GBPUSD manages to secure a monthly close above the 1.3600 lower high, this could signal the end of the bearish trend on the monthly charts and instil bulls with enough motivation to target 1.3850 and 1.4230, respectively.

If the Cable can conclude the trading month below 1.3150, bears would have won the battle, with further falls to be expected towards 1.2800.