Rolls-Royce (LON: RR) share price popped by more than 3.3% on Monday as the GBP/USD price plummeted to a record low. It was trading at 74.32p, which was slightly above the year-to-date low of 69.75p.
Weak sterling as a catalyst
Rolls-Royce Group is one of the biggest industrial and manufacturing companies in the UK. The firm manufactures products in industries like aviation, energy, and defense. It has operations in the UK and other countries like the UK.
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A major theme in the UK since Friday has been the tax cuts implemented by Lizz Truss and her administration. As a key industrial company in the UK, these tax cuts will have a positive impact on its profitability.
Another potential catalyst for Rolls-Royce Holdings is the weaker British pound since the company usually does most of its business in US dollar. For example, it has huge manufacturing locations in the United States, where it has over 6,000 customers.
Rolls-Royce’s servicing business is made using US dollars. For starters, this is the most important segment for the company since it generates more than 50% of its revenue in its civil aviation industry.
The GBP/USD pair has crashed to an all-time low as confidence in the UK economy worsened. Therefore, as described above, there is a likelihood that the firm will benefit because of the weaker pound. As a UK company, it reports its financial results in pounds, meaning that its dollar income will be much higher.
Still, the company faces numerous challenges ahead. For example, with interest rates rising, there is a likelihood that the firm will spend more money servicing its debt. It added billions of dollars in debt during the pandemic as it fought for survival.
Rolls-Royce share price forecast
The daily chart shows that the RR share price has been in a strong bearish trend in the past few months. It has crashed by 50% from the highest level in 2021. The stock has formed a descending triangle pattern that is shown in purple. Also, it has moved below all moving averages while the MACD has moved below the neutral level.
Therefore, the stock will likely continue falling as recession risks continue. If this happens, the next key support level to watch will be at 60p. A move above the resistance level at 77p will invalidate the bearish view.
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