GBPUSD Daily
Credit Agricole sees sterling as one of the best performing G10 currencies, despite recent setbacks due to a return to risk aversion and firmer-than-expected UK inflation. Sterling’s relative strength is driven by expectations that the Bank of England will hold interest rates steady, cementing its position as the best performing G10 FX player.
the main points:
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Latest performance:
- End of the winning streak: Risk aversion and rising inflation in the UK have ended the pound’s recent winning streak.
- Bank of England Interest Rate Forecast: The market expects the Bank of England to keep interest rates unchanged on August 1, postponing any decision to cut rates until later in the year.
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Focus on upcoming data:
- UK PMI July: Attention will focus on UK PMIs, particularly evidence of an extended economic recovery into the third quarter.
- Economic flexibility: Continued economic resilience may persuade policymakers to delay monetary policy easing beyond August, although it is not the focus of the current discussion.
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Forex market reaction:
- Relative cost: After its recent rally, the pound looks expensive against the euro and the US dollar when compared to short-term fair value estimates based on its relative interest rate attractiveness.
- Long positioning: Sterling remains one of the largest long positions in the G10 FX market, prompting caution about the near-term outlook for the currency.
Conclusion:
Despite recent challenges, sterling remains one of the best performing G10 currencies, supported by the Bank of England’s stable interest rate outlook and economic resilience. However, its current expensive valuation and large long positions suggest caution in the near-term outlook. The upcoming UK PMIs will be crucial in assessing whether the economic recovery can sustain this momentum.
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