Sterling (GBP) Faces a Pivotal Week Ahead, BoE and Brexit Collide
Sterling (GBP) News and Talking Points
- UK inflation, jobless claims, wage data and the latest MPC decision all on the docket next week.
- European Council meeting will review the latest Brexit developments.
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Sterling Traders – From Famine to Feast
UK asset traders will welcome next week’s busy schedule which includes a raft of potentially market moving data releases and events after this week's blank docket. The Bank of England will announce its latest policy decision on Thursday March 22 - with no change expected – and traders should look at the accompanying release to see if MPC members are shifting further towards a rate hike in May. Before the MPC decision, the latest UK inflation figures (Tuesday March 20) and jobless numbers and wage data (Wednesday March 21)will provide more clarity on the UK’s economic backdrop. Current market expectations are for UK inflation to fall to 2.8% from a prior 3.0% with the core reading dropping to 2.5% from 2.7% in January. And wages data may also please BoE governor Carney with expectations of a mild tick-up to 2.6% from 2.5%, helping to further narrow the current negative real wage gap.
Data aside, the most important GBP event of next week is the European Council meeting on March 22-23 when members are expected to agree a transitional period, something UK businesses have been calling for. If the transition period is not signed off, Sterling could face a backlash and fall sharply, with Brexit now just over one year away.
Sterling currently trades just under GBPUSD 1.4000 and is just shy of its highest level in three weeks. A combination of strong UK economic data and a signed-off transition period with the EU may well push Sterling back towards this year’s spike high near 1.43500.
GBPUSD Price Chart Three Hour Time Frame (February 27 – March 16, 2018)
The latest IG Client Sentiment Indicatorshows 47.2% of traders are net-long with the ratio of traders short to long at 1.12 to 1. The number of traders net-long is 1.4% higher than yesterday and 2.6% higher from last week, while the number of traders net-short is 4.4% lower than yesterday and 19.9% 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
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.