Sterling News/ Talking Points
- GBPUSD trades at highs last seen on Brexit day as the US dollar slumps.
- The European Union Withdrawal Bill – Brexit Bill - will be debated in the House of Commons this week.
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GBPUSD Continues to Push Ahead, Aided by a Weak US Dollar
The British Pound rally continues apace, especially against a weak US dollar, aided in part by slightly more positive Brexit talk coming out of Europe. At the end of last week Dutch and Spanish officials both made it known that they would like a ‘soft’ Brexit, to help keep the UK onside in the upcoming trade agreements. In addition, Luxembourg PM Xavier Bettel said the EU should adopt a softer approach on the financial services sector, calling for ‘pragmatism’ from both sides during the ongoing discussions. UK PM Theresa May will also meet French PM Macron on Thursday at a summit in South England
On Tuesday and Wednesday the European Union Withdrawal Bill will be discussed in the House of Commons, where the government hold a small majority. The bill is expected to pass before it goes to the House of Lords at the end of January, where the majority of the chamber are anti-Brexit, and expectations are high that changes will be needed to be made if the bill is to be passed.
GBPUSD touched a high of 1.3770 Monday, levels last seen on June 24 2016, the day after the UK voted to leave the European Union. The latest move has also been given extra fuel this year as the US dollar continues to weaken, despite the prospect of three US interest rate hikes in 2018. The US Dollar Index (DXY) currently trades around a three-year low of 90.15.
GBPUSD Price Chart Daily Timeframe (May, 2017 – January 15, 2018)
GBPUSD – Traders Remain Short of Sterling
IG Client Sentiment data shows 35.9% of traders are net-long GBPUSD with the ratio of traders short to long at 1.78 to 1. In fact, traders have remained net-short since Dec 28 when GBPUSD traded near 1.33732; price has moved 2.9% higher since then. The number of traders net-long is 17.5% higher than yesterday and 5.1% lower from last week, while the number of traders net-short is 0.9% lower than yesterday and 4.7% higher from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed GBPUSD trading bias.
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--- Written by Nick Cawley, Analyst
To contact Nick, email him at nicholas.cawley@ig.com
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