Pound to stay above $1.40

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The British Pound continues to power ahead, and has now gained more than 3 percent over the last 2 weeks against its US counterpart which brings the currency back to levels not seen since before Brexit.

Most have attributed the recent gains to weakness in the US dollar rather than rather than positive data out of the UK.

With Brexit now moving along at a steady pace with deals being brokered between the UK and the EU, business and consumer confidence is likely to pick up which should filter through to positive economic data and may put pressure on the Bank of England to lift interest rates.

Such a move should see the pound move higher well above current levels.

“I think if we get some positive data coming through, if we get a Brexit transition deal, those two elements, some combination of that, that could see markets bring forward their expectations of a Bank of England policy rate hike potentially as early as May”. said NG currency strategist, Viraj Patel.

 “That one-off sort of positive rated story could be taking the pound above 1.40. he added.

Since the start of the year, big players such as hedge funds and small investors have been increasing their exposure to the pound and the long positions as well as short coverings are growing by the day.

“In the week ended 16 January, leveraged funds increased GBP net longs from 30% to 39%, the highest level since the EU referendum. On the other hand, asset managers’ net short position in GBP was reduced from 40% to 33%," says Bilal Hafeez from Nomura.

GDP numbers due out on Friday from the UK will be closely monitored by the BOE and a round of positive numbers is only going to add to the case for a rate hike in the nearest future.

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