GBP leads the outsiders today, and we think it is time to buy it. The Pound is a tricky currency: it can grow even when the dollar is strong. On Monday, GBP was one of the leaders of the trades. Of course, there are all these good old GBP-negative factors, such as concerns over Brexit negotiations, the political situation in the UK and that ‘dovish’ hike by the Bank of England. All of them undermine the Pound. But, actually, the markets do not believe that the Bank of England ended with the rate hike cycle. After the last week's meeting, Mark Carney noted that the inflation level would surpass the central bank’s target level.
Another policymaker told the economy might need some more rate hikes in future. Under this scenario, the markets will cheer any good reason to buy GBP. For example, at the end of the week, the UK will publish the industrial production data. Positive figures will aim the pair towards 1.3280 levels, but keep in mind a strong resistance line at the 1.3196-1.3125 area.
By Helen Rush
Senior Analyst at Capital Markets