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GBP: A Self-Imposed Spell On The Sidelines

GBP: A Self-Imposed Spell On The Sidelines

Nick Cawley, Senior Strategist


Talking Points:

  • GBP remains stuck in a ruck against the EUR with a breakout unlikely in the short-term.
  • GBP/USD is moving on the changing fortunes of the US dollar
  • Heavyweight UK data nears and there’s no reason to get in its way.

Fundamental Forecast for GBP: Neutral

We changed our previously bullish outlook on GBP to neutral last week, citing ongoing Brexit concerns, and we remain on the sidelines this week with little to spark a bullish or bearish conviction.

Brexit talks took a slightly more considered approach late this week when the EU said that they would a ‘punishment clause’ from their Brexit rules and regulations, due to vocal opposition from both the UK and various EU members who thought the measures overly punitive. Whether the clause should have been inserted in the first place is a moot point. As we write, UK PM May is readying herself to speak with German Chancellor Angela Merkel and the outcome of this discussion could give some hints to EU talks in the month ahead of the European Council summit on March 22-23. Despite ongoing difficulties in trying to form a ruling party in Germany, Chancellor Merkel’s opinion is highly valued within the EU and as such should be monitored closely by sterling traders.

On the UK data docket next week, December employment and wages data on Wednesday could provoke a reaction in GBP while on Thursday Q4 GDP numbers will be released. This is the second look at the UK fourth-quarter growth figures. The second quarter estimate of GDP is based on additional data and is produced later than the first estimate and provides a more precise indication of economic growth.

Sterling remains range bound against the Euro and is unable to break out of the 0.86900 – 0.90300 range that has held firm since mid-September 2017, while against the US dollar sterling has shown slightly more volatility with a tendency to push to the upside. A lot of the movement in GBPUSD has been UD dollar driven and until the higher US yields/lower US dollar conundrum has been fully explained, we advise a wait-and-see approach in the week ahead.

GBP/USD Price Chart Daily Timeframe (September 2017 – February 16, 2018)

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.