GBP/USD: CAN THE POUND CONTINUE TO OUTPERFORM? – MUFG

The strength of the British Pound is reflecting less bad news rather than actual good news, point out analysts at MUFG Bank. They point out that next week UK data (inflation and employment) will be key for the Bank of England.

Key quotes: 

“While the pound has performed well this year, data this week may have weighed on near-term performance. The pound is the 3rd worst performing G10 currency this week and the data yesterday looks to be weighing a little on GBP now, with EUR/GBP drifting higher. EUR/GBP is 0.7% higher this week with most of that gain coming since yesterday.”

“The break in GBP/USD above the 1.2500 level which has coincided with the break higher in EUR/USD is significant technically and in circumstances of US dollar sentiment remaining unchanged, there is certainly scope for the move to extend higher, in particular given the lack of conviction behind the move evident in IMM positioning data.”

“A weak set of data next week that changes expectations on a BoE rate hike on 11th May could well undermine GBP performance but that is more likely to be evident versus EUR than against the rest of G10 given many central banks have already moved to a pause and the curve in the US points to aggressive cuts by year-end.”