GBP/USD: a 1000-pip drop since last June - is it time
to buy the pair?

The GBP/USD has fallen over 1,000 pips since June. Is it time to buy, or will the downtrend continue?

One of the strongest bearish trends in recent months has been formed in the GBP/USD pair. It has fallen by over 1,000 pips since last June, and each bounce seems to follow a bottom.

Yet every time it bounces, the market reverses to a new low. Is this one of those times or has the GBP/USD bottomed out?

The GBP/USD continues to form various lows and highs
From a technical analysis perspective, the GBP/USD price action remains bearish all the way below the bearish trend line. The market continues to form a series of lower lows and higher highs and unless broken, traders will likely sell any rebound.

1.30 offered support for now, but it is unlikely to do so on the next attempt. As such, it remains a pivotal area, and a daily or weekly close below it should trigger further weakness.

UK exports have not recovered to pre-pandemic levels
For those wondering why sterling is so weak against the dollar, UK exports could explain it. Post-Brexit, UK goods exports are underperforming relative to the rest of the world.

Specifically, while exports from advanced economies have recovered to pre-Brexit levels, UK exports have not.

Investors continue to sell the pound despite pro-pound monetary policy
Interestingly, sterling weakness occurs when the Bank of England rate is above the federal funds rate. In the UK, the Bank of England raised the rate to 0.75%, while the Fed barely raised the rate by a quarter of a basis point after keeping the funds rate close to zero during the virus situation.

Thus, the GBP should have appreciated against the USD, but the exact opposite happened. Going forward, the Bank of England has signalled that it is holding off on rate hikes, at least for a while, to study incoming economic data.

In the US, the Fed sees the possibility of raising rates by 50 basis points at its next meeting. Thus, the spread between the two interest rates will narrow considerably, putting further pressure on the GBP/USD exchange rate.

Overall, a drop below 1.30 means more problems for the pound, while the bearish bias will only dissipate a move above the downward trend line.