Pound Slides as Traders Consider Current Rally Excessive

The pound sterling dropped versus the euro and the dollar, after hitting a seven-month high against the dollar in a sharp rally to be considered excessive, as traders agree it does not reflect the United Kingdom’s economic outlook.

The British pound also lost ground against the yen and the country’s main stock exchange index, the FTSE 100, dropped 1 percent after two days of significant gains. The benchmark measure of U.K. equities interrupted its climb to a five-month high after Barclays Plc lost 13 percent, as investors from the United Arab Emirates sold their shares in worth of 4.1 billion pounds. Even if the pound has reached very low levels in the beginning of the year compared to much higher values it had before the global slump, Britain’s economy has still not showed sufficient signs of recovery that could sustain the pound’s rally for much longer.

Analysts consider the current uptrend weighing on the pound to be related directly to the extreme low levels it hit in the previous months, but as it may not be in a sustainable recovery path, it is expected that traders make profits after 2 days of sharp gains versus the dollar, as occurred during the past week. Without further optimistic reports confirming that the U.K. may soon be out of the current recession, the pound is not expected to climb further against currencies like the euro and the dollar.

GBP/USD traded at 1.6407 from yesterday’s top at 1.6495. EUR/GBP rose to 0.8650 from a previous price of 0.8615.