Is there justification for a Sterling rally?

GBPEUR: Chances of No-Deal Force GBP to Surrender Gains

Is there any reason for optimism regarding the Pound?

The Pound remains fragile. Lack of clarity on Brexit and poor economic data is keeping the pound anchored to current buoyancy levels. We have recently had a fall in manufacturing data which proved to be the biggest drop since October 2012. GDP came in below expectations at 0.2% and average earnings has fallen to 2.5%.

Some economists are still optimistic and are predicting a rate hike from the Bank of England (BOE) in the coming months. I think there is little justification for one this year.

The point of contention in Brexit talks at present is the Irish border deal, unfortunately Theresa May and David Davis are currently having trouble even agreeing a back up plan. They do hope to have something in place before the EU summit on 28th June.

This does not bode well for the Pound. In order to see the Pound make any significant gains we will need real progress in talks, which at the moment doesn’t seem likely to happen anytime soon.

GBP/EUR – The ECB meeting is tomorrow and if there is a cut to the QE program we could see significant Euro strength, although I am not convinced this will occur, it will probably happen later in the year.

If you are buying Euros short term move at around 1.1430, anything higher I feel too optimistic short term. Euro Sellers you are in an incredible spot. Pre Brexit rates were 1.42. 1.13 is a very attractive rate to trade at. There is room for further gains, but evaluate whether it is worth the risk before taking the gamble. The QE situation does have the potential to cause Euro strength.

GBP/AUD – I would be surprised to see a rate hike from the RBA this year and the current trade war between China and US has the potential to cause some Sterling gains, but I doubt anything substantial.

Aussie buyers aim for 1.77 short term. Aussie sellers I would take advantage of rates as they sit, The popularity of the USD is hitting the Aussie and there is the 90% chance of a rate hike form the Fed this evening.

GBP/USD –  The Dollar is moving from strength to strength. The returns on treasury bonds is now at some of the best levels in years and investors are taking advantage of the situation. There is a Fed rate hike predicted this evening, but I am of the opinion this is factored into current levels. If the Fed speech after indicates further hikes however this could cause further US Dollar strength.

If you are a US Dollar buyer say your prayers if you are moving short term aim for 1.34. USD sellers move if it drops below 1.31. I think 1.30 could be a point of resistance.

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