- The share of orders to sell the Sterling declined from 74 to 66%
- The bulls remain in a majority with 57%
- GBP/USD heads towards the 2013 low at 1.48
- Survey: Sterling to decline in the long term
- Upcoming events: UK GDP Growth, Mortgage Approvals, US Durable Goods Orders, Consumer Confidence, New Home Sales
The Great Britain Pound was the most demanded currency in the market yesterday, it outperormed all its major counterparts. The largest gain was recorded against the Swiss Franc (3.19%), and the smallest gain was against the Euro (0.29%).
Kristin Forbes, the Bank of England's Monetary Policy Committee, hinted that interest rates in the UK may start rising sooner than expected amid improving global economy. As a result, the British Pound strengthened for the first time versus the US Dollar, gaining 0.2% to $1.5013. Forbes is optimistic about the world's economic prospects given strong growth in the US, as well as potential for falling oil prices to spur consumption and investment in the UK, "as decline in oil prices will lead to a redistribution of income and demand away from net oil exporters toward net oil importers." Plunging oil prices in the UK have brought the inflation rate to the lowest level in more than a decade, which would further bring down consumer prices in the near term. However, rates would eventually rebound, potentially breaking above the 2% inflation target, Forbes said. The UK economy will keep momentum throughout this year, as low inflation should spur spending and investment, resulting in a stronger argument for an earlier rate lift than market participants expect at the moment to halt inflation from overshooting the BoE's 2% inflation goal.
The BoE has held interest rates at a record low 0.5% since early 2009. The central bank plans to normalize the monetary policy by a low and incremental increase of interest rates. Investors expect the rates to start rising in the mid-2016.
UK growth to decelerate
The main event for the United Kindgom should be the prelimenary GDP growth, which is expected to slow down from 0.7 to 0.6%. At the same time, the Mortgage Approvals are estimated to stagnate at the previous level of 36.7K.
GBP/USD jumps above weekly PP
Simon Smith, Chief Economist at FXPro, advises not overestimate bullish potential of the US Dollar in 2015. According to him, "we will see Dollar strength through the year, but it's going to be a very difficult year in terms of trends".
As for the Sterling itself, Charles Purdy, CEO of Smart Currency Exchange, sees weakness in the nearest future, arguing that "the UK election will count against Sterling" in terms of "higher levels of uncertainty". According to the analyst, GBP/USD is likely to fall to 1.50 and then to 1.46 in one and three months, respectively. However, in a year he expects the exchange rate to recover to 1.48, after the BoE hikes the interest rates in the second half of 2015.
Daily chart
Though we expected more weakness for the Sterling, the currency rebounded from 1.50 because of the new speculations regarding the rate hike in the UK. There is a good chance the currency has not yet fully realised its near-term bullish potential, and GBP/USD may reach the monthly S3 at 1.5150 in the coming days. The key resistance is at 1.53, where the multi-month down-trend joins forces with the monthly S2 level.
Hourly chart
There are less bulls than yesterday
The bulls remain in a majority, and the current percentage of long positions is at its 10-day average, namely at 57%. At the same time, there are less and less people willing to sell the Pound, the share of orders to sell the currency declined from 74 to 66%.
While there was only a slight change in the SWFX sentiment, the portion of longs positions at OANDA lost five percentage points, and now the bulls take up only a half of the market. The share of longs at SAXO Bank fell as well, but to a significantly lesser extent, from 64 to 62%.