Inflation and Retail Sales a concern for the BoE
Following a host of positive data releases we saw significant gains for the pound against the majority of major currencies. GBP/EUR breached 1.15, GBP/AUD nearly broke 1.85 and GBP/USD got close to 1.45. There was a large rise in average wage growth and unemployment hit a 43yr low.
A transitional deal was all but agreed for Brexit, granting the UK access to the single market for two years until a full exit from the EU. This all points toward a rate hike from the Bank of England (BOE) in May. In fact I am of the opinion a rate hike is already factored in to current levels of exchange. It would be unwise to expect there to substantial Sterling gains if a rate hike does occur. It is important to remember the market moves on rumour as well as fact. The danger is if a rate hike does not materialise, this would cause a sharp drop in the pound’s value. It is always worth keeping an eye on Carney’s speech following the interest rate decision, if there is any hint to monetary policy moving forward it can cause volatility on the exchange. There has been occasions where a rate hike has occurred and then the speech gave away that further rate hikes would be not for the foreseeable future and the pound fell as a result.
Recent poor data releases on inflation and retail sales have put a hint of doubt on the hike, the hike is still priced in, but Carney’s recent interview with the BBC was dovish and it hinted toward a rate hike later in the year, not May as anticipated.
GBP/EUR – Short term Euro buyers aim to move if the market hits the high 1.14s, 1.15 is predominantly only available for small windows of opportunity. If you have high expectations, a limit order maybe the way to go. Drop me an e-mail if you would like to know more.
Euro sellers, be wary of hoping for significant gains, although the pound is fragile but it is significantly undervalued and I think the worst is over. Move at low 1.14s or high 1.13s.
GBP/AUD – The Aussie could be in trouble due to the US-China trade war effecting exports and the unambitious interest rate forecast from the Reserve Bank of Australian (RBA). Despite this 1.85 remains a resistance point. If you are buying AUD move in the 1.84s. Sellers low 1.83s or high 1.82s.
GBP/USD – There are rumours Trump is trying to artificially weaken the Greenback to boost exports, this combined with the US-China trade war have caused uncertainty on how the USD will perform. Sterling got very close to pre-Brexit levels of late, but be wary of hoping for much further gains for the pound. Very difficult to predict, personally if I was holding Dollars I would be looking to sell while below 1.40 considering GBP/USD nearly hit 1.45 of late. Buyers aim for 1.43.
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