British Pound (GBP): Outlook For Next Week - "Sterling to remain strong, but not much stronger"

British pound to Euro exchange rate:

1.2024

British pound to US dollar:

1.2515

British pound to Australian dollar:

1.9302

British pound to Canadian dollar rate:

1.7533

British pound to New Zealand dollar rate:

2.1455

British pound to South African Rand rate:

22.6421

BE AWARE: All the above quotes are taken from the wholesale inter-bank markets. Your bank will affix a spread to the rate at their discretion when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.

"The best performing currencies today are the British pound, Australian and New Zealand dollars. The recent shifts in monetary policy by the Bank of England and Reserve Bank of Australia have been extremely positive for these currencies. Better than expected Eurozone GDP growth in the fourth quarter also drove EUR/USD higher today but the currency pair continues to struggle with 1.37, a level that it failed to clear at least 3 times this year. Stronger GDP numbers helped to drive euro above 1.37 temporarily but the breakout has not been convincing. However we have been watching the spread between German and U.S. yields very closely and the larger increase in German 10 year bond yields versus 10 year Treasury yields should be positive for the euro." - Kathy Lien at BK Asset Management.

More from Vasileios Gkionakis at UniCredit, this time on the outlook for sterling next week:

"As financial markets took the strong projections for growth and inflation of the latest BoE inflation report at face value, broadly disregarding any reservations expressed by governor Mark Carney on the GBP's strength, sterling will likely remain at elevated levels vs. both the EUR and the USD, as long as UK data readings support the recently reinforced expectations of a rate hike.

For reference, we note that we have penciled in the first rate hike for 4Q14, whereas money markets are pricing it in for 2Q15. Next week will see the release of yet another strong labor market report and potentially subdued retail sales. On balance, we think sterling will trade with some upside bias.

UniCredit themselves note that they are loners with their euro dollar forecasts for 2014. But current price action could actually see them making the correct call on EUR/USD:

"The brighter growth outlook in the euro area, potential flows from emerging markets alongside the strong historical correlation between European equity performance and EUR-USD argue that the common currency should remain well supported throughout this year. We are still very comfortable with our out-of-consensus call for EUR-USD to reach 1.40 by the end of this year."

Expect this to aid the EUR/GBP to some degree.

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Vasileios Gkionakis at UniCredit tells us what markets will be keeping an eye on next week:

"For next week, markets will likely pay particular attention to the FOMC minutes, preliminary PMIs from the eurozone and the BoJ meeting. However, we do not expect those three events to trigger any trend-setting direction in corresponding currency pairs. Among the majors, range-trading should be of reference, which is also due to the still somewhat vulnerable global risk picture. Sterling will likely remain at elevated levels vs. both the EUR and the USD."

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"GBP is strong, having rallied to a new multi-year high and broken above 1.67. Its rally is far surpassing movement in UK‐US interest rate spreads. Today’s move was likely tied into stronger than expected Eurozone GDP, as a very modest and subdued recovery in Europe is one of the weights on the UK outlook" - Camilla Sutton at Scotiabank.

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"The GBP/USD followed its mainland brother higher, conclusively breaking out to a new nearly 3-year high. Given the major breakout, rates may continue to rally toward the next level of previous resistance near the 1.6750 level today and heading into early next week. Meanwhile, any near-term dips may now find support in the mid-1.6600s, so more conservative traders may want to wait for a dip before buying." - Matthew Weller at GFT.

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Sean Lee at FXWW sees GBP as being one of the more sure bets on the FX markets today:

"My trade-of-choice is to be long GBP and I see no reason yet to change this view.

"EUR/GBP is consolidating recent losses and cable made marginal new highs overnight. GBP/JPY is also in consolidation mode and my shortish-term target remains 174.00.

"Friday is often risk-off day but as I don’t think the market is really long of risk just yet, I’m guessing that today might be a bit different."

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"Sterling is looking increasingly bullish this morning having broken above yesterday’s highs before finding resistance around 1.67. Should we see a break above here, the next target will be 1.6753, the 61.8% expansion of the move from the recent retracement, which roughly coincides with the April 2011 highs. A break above here will be a clear indication that the market remains very bullish on the pair and could open up a move towards 1.70 for the first time since August 2009." - Craig Erlam at Alpari UK.



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Luc Luyet at MIG Bank:

"GBP/USD continues its streak of strong daily advances. The key resistance at 1.6668 is challenged. Another resistance can be found at 1.6747. The short-term technical structure remains positive as long as the support at 1.6600 holds. Another support can be found at 1.6511 (intraday low).

"In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 holds. A decisive break of the resistance at 1.6668 would open the way for a move towards the major resistance at 1.7043 (05/08/2009 high)."



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Latest predictions from Swissquote on the performance of GBP:

"It has been a profitable week for GBP-complex. The BoE Governor Carney has once again been fairly unsuccessful in convincing the markets on his forward guidance policy. The “new era of forward guidance”, where the 7.0% threshold has been given the “no-trigger” status, faced decent rejection. The anti-Carney demand revived bulls in GBPUSD. The unexpected contraction in US retail sales sent GBPUSD at the fresh year highs.

"At the time of writing, GBPUSD hit 1.6716 - the highest since March 2011. The bullish momentum solidifies; option bids with today expiry are placed at 1.6650/1.6700. Next week, the UK will release January CPI figures. As stated in the quarterly inflation report on Wednesday, the risk of inflation undershooting below the 2.0% target keeps the BoE worried about the economic recovery. At this stage however, the markets do not share BoE’s view on forward guidance - no matter how soft the inflation is."

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We have two pro-GBP forecasts today from UBS, the first is bullish on GBP/USD and the second bearish on EUR/GBP:

"As bullish conditions persist, there’s scope for more upside to critical resistance at 1.6747. A break above which would open 1.6878. Support is at 1.6463

"The recent sharp sell-off reinforces the broader bearish picture and focus is on support at 0.8160. A close below which would be next bearish event, triggering a sell-off to 0.8082. Resistance is at 0.8300."

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The UK currency is well ahead of the euro now; the latter failing to attract any interest on the back of today's Eurozone GDP data. This is more a function of broader market sentiment though; with markets in recovery mode on Friday the euro is seeing outflows. As mentioned previously, the GBP appears to favour positive market conditions. A look at the Eurozone GDP shows:

The Euro-zone releases 4Q preliminary GDP growth across the zone. The French and German numbers came in better-than-expected this morning. Preliminary data showed that French GDP y/y grew 0.8% in Q4 (vs. 0.2% exp. & 0.6% last), German GDP y/y (non-seasonally adjusted) growth accelerated from 1.1% to 1.3%.

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We have focused on market conditions a lot today and this is important for the GBP, as noted by Lloyds Bank Research:

"Risks remains slightly to the upside, but GBP is now one of the favoured risk positive currencies and consequently remains sensitive to fluctuations in risk appetite."

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With no hot air to shake up investor sentiment we see sterling is able to advance on the back of the post-QIR momentum. Thus, we would expect technical predictions to be of high relevance in this environment.

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"Asian benchmarks outside of Japan are closing out higher this morning, with the MSCI Asia up 0.7. The yen advanced and safe havens saw outflows, as risk appetite continues to remain buoyant. Equities are once again climbing a wall of worry, where the anticipation and absence of risk-negative events keeps the market stable in line with moderate inflation and low rates. The fears just a week ago that the market had got way ahead of itself seem overdone given recent price action." - David White Spreadex.

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Momentum carries Sterling forward

Is sterling due a correction lower?

Stability above 1.6580 key for GBP/USD

Pound euro forecasted at 1.3

More details in yesterday's report.