Lee Hardman, Currency Analyst at MUFG, suggests that the pound has been one of the few global currencies which have held up well against the US dollar since the US election.
Key Quotes
“It has resulted in cable remaining relatively stable at around the 1.2500-level. In contrast, the pound has strengthened sharply against other currencies such as the euro. We expect recent trends to continue in the near-term although acknowledge that cable is coming under building pressure to succumb to broad-based US dollar strength which could drag it back towards the 1.2000-level. One supportive factor in cable’s favour is that it is already extremely undervalued which could be helping to dampen further downside potential. According to our long-term PPP model, cable is already trading at more than two standard deviations below fair value which comes in at around the 1.2500-level.”
“Economic fundamentals in the UK at the current juncture do not appear to support even more extreme undervaluation. The UK economy continues to remain “remarkably” resilient in the face of Brexit risks. Retail sales growth has been surging increasing by 2.1% during the three months to the end November compared to the previous three months. Robust personal consumption growth continues to pose upside risks to consensus expectations that economic growth will slow to a weaker pace of expansion. The current Bloomberg consensus is for quarterly GDP growth to slow to an average rate of around 0.2% from the current quarter until the end of next year. In comparison the economy has expanded by a quarterly average rate of 0.6% over the last twelve months to the end of Q3.”
“The ongoing resilience of the UK economy is likely to prevent the BoE from delivering further monetary easing in the near-term which is offering more support for the pound. The BoE maintained its neutral policy bias at yesterday’s policy meeting signalling that policy can respond in either direction to changes in the economic outlook. The pound’s recent rebound has been welcomed by the BoE in so far as it has helped to slightly lower the path for inflation although they reiterated that the there is a limit to the extent that an inflation overshoot can be tolerated. The recent rise in inflation expectations has increased the risk of second round effects which the BoE will continue to monitor closely going forward.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds above 1.0700 ahead of key US data
EUR/USD trades in a tight range above 1.0700 in the early European session on Friday. The US Dollar struggles to gather strength ahead of key PCE Price Index data, the Fed's preferred gauge of inflation, and helps the pair hold its ground.
USD/JPY stays above 156.00 after BoJ Governor Ueda's comments
USD/JPY holds above 156.00 after surging above this level with the initial reaction to the Bank of Japan's decision to leave the policy settings unchanged. BoJ Governor said weak Yen was not impacting prices but added that they will watch FX developments closely.
Gold price oscillates in a range as the focus remains glued to the US PCE Price Index
Gold price struggles to attract any meaningful buyers amid the emergence of fresh USD buying. Bets that the Fed will keep rates higher for longer amid sticky inflation help revive the USD demand.
Sei Price Prediction: SEI is in the zone of interest after a 10% leap
Sei price has been in recovery mode for almost ten days now, following a fall of almost 65% beginning in mid-March. While the SEI bulls continue to show strength, the uptrend could prove premature as massive bearish sentiment hovers above the altcoin’s price.
US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets
The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase.