Sterling bounce could be short-lived

Risk currencies are off to a relatively flat start, although sentiment is vastly improved from the carnage we saw last week.

Source: Bloomberg

Bond markets showed signs of stability in the US, with the 10-year yield rising 4 basis points in the US and Germany. This helped prop up the US dollar, which had struggled most of last week despite the ongoing tightening debate.

Cable has been an exception and is testing the $1.6100 level. The pound got a bit of a lift from comments from the BoE’s chief economist suggesting markets may have overreacted to some weak data recently. However, I’m not sure just how much further the pair can run before sellers flock back in.

While traders would want to buy into the notion the BoE could still hike earlier than expected, the recent deterioration in data is likely to take precedence. On the UK calendar this week, we have public sector net borrowing, MPC minutes, retail sales and GDP data. This puts the sterling in the spotlight with some volatility highly likely. There is a fairly big sell region between $1.6100 and $1.6200 – I wouldn’t be surprised to see the pair come under renewed pressure.

Click to enlarge

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.

Find articles by analysts

Find out more about