GBP Heading into Soft Economic Releases

The pound’s stellar run could prove vulnerable to data disappointments.
Sterling rallied last week as Donald Trump’s tweets and the dovish account of the March European Central Bank meeting led investors to buy it against both the dollar and euro. This week, strategists say the pound could continue to benefit from global geopolitical tensions, although U.K. data may pull it in the opposite direction.

“The pound is looking pretty good,” said Jane Foley, head of currency strategy at Rabobank. “But it has to get through the U.K. earnings and CPI data in the coming sessions. These are perhaps the most important numbers in the month right now, given the forthcoming Bank of England meeting.”

The market is primed for a disappointment after manufacturing and industrial production figures last week didn’t live up to expectations, and with the Citi Economic Surprise Index approaching the lowest since September 2017. Leveraged funds have built up the biggest long position on the pound since August 2014, according to the latest CFTC data. This week traders will watch jobs data, inflation and retail sales.

If wage growth is less than forecast, it’s unlikely to affect bets on a May interest-rate rise but could cause the market to pull back on pricing of a second hike in November, according to Foley. This would cause sterling’s recent strength to falter, she said.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza