Thursday’s UK Industrial Production announcement is a sterling-buy opportunity
By Yann Quelenn
We believe the markets have overestimated the negative impacts of Brexit on the British economy and the GBP. So, we expect to see the pound continue to climb out of its nadir – reached in January 2017 – of around 1.20 USD. However, there will be setbacks, including a likely one tomorrow, when UK industrial production data for June are released. We expect they will show a 2017 annualised growth of 0%.
Buy on the dips! And the USD/GBP is likely to dip slightly from its current level of around 1.30.
The pound was hit hard by Brexit, dropping from around 1.45 GBP/USD prior to the EU-exit referendum of 23 June 2016. However, neither the pound nor the UK economy collapsed – as was widely feared – and we don’t see this as a likely scenario in future. We’re still bullish on the pound versus the USD.
USD is bouncing back against the Euro
By Arnaud Masset
The USD continues to gain against the Euro. Whereas in early August nearly 1.19 dollars bought a Euro, now it’s closer to 1.17. Some of the comeback is due to profit taking, but there are fundamentals, too: the market has first been overly optimistic about European Central Bank policy normalization and second too dovish regarding the US Federal Reserve. With today’s weak global inflation, both banks are more likely than ever to stay rather neutral or slightly dovish.
The USD is also rising against the commodity currency complex. Higher yielding currencies such as the Aussie and the Kiwi were first, as they retreated 0.58% and 1.24% since Friday.
Meanwhile, safe haven monies got a booster shot. The Swiss franc was up almost 1% against the greenback on Wednesday, while the Japanese yen rose 0.45%. Gold bounced back to $1,268 per ounce, on its way towards the next key resistance that lies at $1,296.15, its previous high of 6 June.