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.
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