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Has GBP reached its peak?

Has GBP reached its peak?

GBP has improved versus USD in 8 out of the last 11 weeks. This has been fueled by skepticism surrounding Carney’s forward guidance and a firmer recovery of the UK economy that is prompting investors to think about a rate hike sooner, at least sooner than the Bank of England expects.

Yesterday morning’s data from UK high street retailers knocked GBP from the dizzy heights of 1.6150 against USD and down into the 1.18’s versus EUR. This correction or fall back may represent GBP reaching its ceiling.

With an extremely light data calendar today lets take a step back from the daily, weekly and even monthly view to look at three big stories that are going to develop in the coming months.

  • German election – held on September 22nd, assuming Merkel wins we may see a bit of Euro strength. However recent polls suggest she may have to compromise more to win total favour.

  • US debt ceiling – a bureaucratic process in the US could be leveraged to force changes in policy from the government, this brinkmanship could add some market uncertainty which may, contrary to logic, strengthen USD as it will be a global risk event.

  • Federal Reserve change of chairperson – as far as the market is concerned, each candidate sits somewhere on the dove (low interest rates), hawk (high interest rates) spectrum. As such, when comments are made and candidates fall in and out of favour, so USD will be impacted accordingly.

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