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The Pound Sterling has fallen under intense pressure in recent times, given political uncertainty over the nearing referendum on British membership in the European Union. Moreover, the island nation is strongly exposed to overseas weakness, especially in mainland Europe and Asian countries where the UK has deep historical trading ties. From the fundamental point of view for the period ended February 5, the Pound used to have few reasons for substantial optimism. Manufacturing and services sector activities posted stability in January, while construction industry's growth is now forecasted to retreat over the months to come, as the PMI dipped to 55 points last month from 57.8 points in December. Last week included the Super Thursday—the only day in three months for the Bank of England to shine. After deciding to leave interest rates steady at 0.50%, it was revealed that the only hawk on the MPC Ian McCafferty dropped his stance for an immediate hike by 25 bps. Governor Mark Carney, however, calmed dovish markets down, by saying the next move is likely to be a rate increase, rather than a cut.
Weakness in the American currency has shifted market expectations in favour of the Pound this week, even though soft drivers can be found from both sides of the Atlantic. Two thirds of traders who participated in our Dukascopy weekly quiz estimate GBP/USD to go up, while the average forecast stands above 1.46. The pair is highly likely to be driven by overall sentiment in both stock and commodity markets, because there are only few fundamentals that are able to put pressure on this currency pair. UK manufacturing production is out at 9:30 GMT on Wednesday. Moreover, Fed Chair Yellen is going to testify before both parts of the Congress.
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