The British pound rallied on the results of the UK elections and weathered the NFP quite well as well.
Can it continue higher from here? Kit Juckes at SocGen examines:
Here is their view, courtesy of eFXnews:
“A relief rally for Sterling and for UK assets is underway. Political uncertainty was universally expected with a protracted period of efforts to build a government. That uncertainty is removed. The economy will also get a lift in the short run and that may see the market bring forward the timing of the first rate hike, which would help sterling.
The short term story really is more about positioning than anything more fundamental…We don’t have a forecast of GBP/USD going back to 1.70 as the market flips its position, but we probably need to respect the fact that shorts are being squeezed. Likewise, Options positions are going to get cleaner at a rapid pace.
Long term, fiscal austerity can’t be a big boost to the growth outlook and may well temper MPC tightening relative to Fed tightening. The prospect of an EU referendum will also become a bigger issue in due course. It’s on the government’s agenda. But away from these issues, and frustratingly, the biggest driver of sterling’s performance will be the never-ending saga of Fed policy on the other side of the Atlantic, and the extent to which the Euro zone economy recovers and affects ECB policy, on the other side of the channel. Both of these are going to matter more than what political stability does for UK growth and policy.â€
Kit Juckes – SocGen
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