The pound has reached the highest levels against the dollar since 2016 and it also makes gains against the euro. What’s next?
Here is their view, courtesy of eFXdata:
Societe Generale Cross Asset Strategy Research discusses GBP outlook and maintains a structural bullish bias especially against the EUR.
“The calendar throws out UK labour market data tomorrow (look for slightly faster wage growth at 2.7% ex-bonuses). We expect core CPI (Wednesday) up a tick at 2.5% y/y, and retail sales are due on Thursday. The market already attached a very high probability to a May rate hike and at some point will probably become convinced that rates will be above 1% in early 2019. All of which supports the pound.
We expect EUR/GBP to reach 0.84 but two caveats remain: Firstly, the UK economy is still slowing and still underperforming its peers; and secondly, as CFTCF data show, there has been a huge turnaround in sentiment and positioning. Sterling was, and still is, cheap on a historical basis and the market’s net short was huge. This move is only really an unwinding of that position as sentiment lurches,†SocGen argues.
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