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Ned Rumpeltin, European head of FX strategy at TD Securities, notes that GBP remains under pressure today with cable slipping briefly below the 3 January trough at 1.2441 and a clear break below that would put a test of 1.2351 into view.

Key Quotes

“Other sterling crosses look similarly perilous, with EURGBP also pushing briefly above the 0.90 threshold. This comes as the two remaining contenders in the UK’s leadership contest continue to ratchet up the hard Brexit rhetoric now that the ballots are in the hands of Conservative Party members. That said, with about two weeks to go before results are announced, it does appear that sterling has a lot of bad news in its price.”

“The question, however, is what could provide a catalyst for a potential reversal? This puts Wednesday’s monthly UK data dump into view. Granted, it has been a while since macro data has had a strong directional influence on sterling, but we are looking for a solid bounce-back in the UK’s monthly GDP report tomorrow. TD is looking for a robust 0.5% m/m gain, well above the market’s expectation for a 0.3% rise, just as forecasters are also turning more bearish on the UK’s economy.”

“On a medium-term basis, we are similarly concerned that the UK’s economy and currency are both heading for rocky shores. Over a (very) short-term horizon, however, we think the bearishness toward GBP looks a little overstretched.”