Lower political risks and positive statistics in Britain allow the GBP/USD bulls to attack

When your enemy has loosened the grip, and you have enough strength - it's time to launch a counter attack. The criticism of the Fed’s activities by Donald Trump, the correction of American stock indices and the slowing of producer prices forced some investors to take profits in the US dollar, which the British pound immediately took advantage of. According to Eurizon SLJ Capital, the sterling may rise to $ 1.35-1.38 in the short term after London agrees to a divorce with Brussels. In the medium term, the GBP/USD will continue to rally in the direction of 1.45-1.55 as the Foggy Albion enters into trade negotiations with the rest of the world. The hedge fund believes that the outlook for the pound is the most optimistic compared to the other G10 currencies and looks forward to rapid growth as soon as the agreement with the EU becomes a reality.

We have to admit that this approach is substantiated. For a long time, the political risks blocked the oxygen to the sterling, and in such conditions even strong macroeconomic statistics could not inspire the GBP/USD bulls to exploits. In October, the situation began to change for the better. The European Union’s main negotiator, Michel Barnier, said the deal was 80-85% negotiated, the Times reported that about 30-40 representatives of the opposition Labor Party were ready to support Theresa May’s project in parliament, and there are rumors on both sides about the successful resolution of the Irish boundaries.

Coupled with the acceleration of Britain’s GDP to 0.7% q / q in June-August, which is the best performance since 2016, when the Albion grew faster than all G7 countries, and the Bank of England’s hawkish rhetoric, the improving political landscape allows the GBP/USD to believe in a brighter future. TD Bank believes that the fair value of sterling is $ 1.35, and MUFG considers its forecast of $ 1.34 at the end of 2018 too conservative.

UK GDP Dynamics


Source: Financial Times. 

According to the chief economist of the BoE Andy Haldane, in conditions where labor productivity is practically not growing, and wages are at risk of accelerating to 3% y / y, inflation has every chance of continuing the rally. Such rhetoric should be regarded as hawkish. It is quite possible that the Bank of England has returned to the old ways trying to strengthen the pound with the help of verbal interventions. It is unlikely that until March 2019 it will raise the repo rate, and in order to keep the CPI in check, it would be nice to enlist the help of revaluation.

Despite the criticism of the sterling bears who claim that the US economy depends on weather conditions and will continue to grow below the trend on an annualized basis, it must be admitted that without taking into account the political factor, the GBP/USD looks promising. Naturally, the greenback looks good too, but if the process of closing long positions in US currency continues, the journey of the pair to 1.335 and 1.35 will become a reality by the end of this year. My recommendation - retain the long positions formed from the 1,3065.   

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Price chart of GBPUSD in real time mode

Pound has risen from the ashes

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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