GBP Purple Patch
The greenback remained on the back foot against its British counterpart, helping the GBPUSD pair to maintain its upwards trend, currently hovering around the 1.2500 level. Underlying concerns over the US President Donald Trump’s protectionist stance and a lack of detail regarding his pro-economic policies continue to discourage the markets dollar buying appetite; hence assisting the pair’s ongoing recovery from sub 1.2400 levels seen earlier this week. Even recent hawkish comments from various Federal Reserve (FED) officials, including the Fed Chair Janet Yellen has failed to extend any support to the greenback as investors remain worried about the uncertainties over the US President Donald Trump’s proposed fiscal policies.
Sterling has shown remarkable resilience over the last 10 days (vs its expected and recent performance), which can be highlighted by GBP’s rapid recovery vs the dollar. In part this may be that Sterling is still oversold but this may also be a degree of certainty returning to the market. UK data due today is expected to show retail sales volumes only increased 0.9% month-on-month in January, causing the year-on-year rise to a moderate 3.4% from 4.3% in December. As the US data docket is light, the doors are open for a cable rally, especially if the UK retail sales figure beats estimates.
The European Central Bank (ECB) minutes from the mid-January meeting confirmed that the authority would look to increase the inflation rate, almost solely triggered by a surge in energy prices. The ECB expects that overall inflationary pressure would remain muted despite an element of uncertainty surrounding developments in wages and hence a further pledge to maintain a very accommodative monetary policy. Euro weakness in the case of rising political uncertainty could be a risk for all euro cross currency rates.
In the coming few months we have a significant amount of political risk in the market with the Dutch elections on March 15 and the, perhaps more significant, French elections at the end of April. Political risk is always detrimental to a currency (EUR) and one thing that the last 12 months has shown us is that the market has been poor at measuring just how much risk there is. With a divergent forces in the US and Political Risk in Europe, it could be GBP that benefit during this period.
Data to watch:
09:30 GBP Retail Sales