GBP - how strong is it really? - Rabobank

Over the past few days GBP/USD has crept back to its strongest levels since June 2016, the Brexit referendum day. Jane Foley, Senior FX Strategist at RaboResearch, highlights some of the key factors behind the improvement in sentiment surrounding the British Pound.

Key quotes:

“A key turning point in the outlook for the pound was September. This brought a surge in market expectations about the prospect of a rate hike from the BoE (which followed in November). The market is expecting that the BoE will hike rates again this year.”

“Economic growth has also likely being lending GBP protection. The world economy is performing well and the Eurozone was a star performer in 2017. This will float all boats. Although the Bank of England has proclaimed investment in the UK as being weaker than it would be if political uncertainty was not a significant feature, the UK economy managed to grow by a very respectable 0.4% q/q in Q3 (this compares with 0.8% q/q for Germany). Generally speaking, strong growth can help counter some of the impact of political uncertainty on asset markets and reduce volatility.”

“Sterling therefore appears better positioned to face the uncertainty that the forthcoming EU/UK trade negotiations will bring. These are not due to officially start until March, although preparations have already begun.”