The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
Now that we have the monthly purchasing managers index (PMI) readings out of the way, we can look forward to the Bank of England (BoE) meeting and the quarterly inflation report (QIR) that comes out along with it.
Find out more on why the BoE meeting is important to traders.
This meeting takes place in the wake of the latest push higher for the pound, especially against the US dollar. A 5.6% gain against the US dollar was not something many had been expecting, even given the surge against the greenback witnessed since the lows of October 2016.
With sentiment towards the pound now quite bullish, as noted by net long positions on the currency at the highest levels since 2014, there might not be much room in the short term for further gains. However, when compared with positioning in 2014, there is still scope for further upside in the longer term.
The recent rally in GBP/USD means that the BoE has less pressure to act; the stronger currency tends to reduce imported inflation, just as the weaker pound boosted it in the aftermath of the Brexit vote. Arguably, the currency now looks to be at risk from a more dovish BoE, especially if growth and inflation estimates are downgraded in the QIR at the same time.
GBP/USD’s dip into late December found buyers, and the surge took the pair to its highest level since 2016. However, gains stalled around $1.43, with $1.4345 marking the upside limit. Below $1.3943, the price could see a wider retracement to $1.3613. The next upside target would be marked at $1.4668, should the pair manage to clear $1.4345.
.jpg)
