British Pound (GBP) Live: Global FX Sentiment Turns Sour as Emerging Markets Shake Up Sentiment

• £ vs Euro:
  1.2004
• £ vs Dollar:
  1.2674
• £ vs Australian Dollar:
  1.9604
• £ vs Canadian Dollar:
  1.782
• £ vs New Zealand Dollar:
  2.1609
• £ vs Rand:
  23.1212

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.

With the British pound's rally now in jeopardy we look ahead to see what could stem the blood letting.

The only major event that could help (or sink) sterling is the GDP reading due on Tuesday the 28th.

Markets are looking for Year-on-Year growth of +2.8% while expectations for quarterly growth are at +0.7%.

So with a scant calendar to look forward to we should be aware that the easiest route for sterling at present is lower.

UniCredit have reiterated their stance on a lower pound dollar exchange rate:

"We maintain our 1.64 forecast for GBP-USD at end-2014, but see upside risks as existing, largely due to further improvements in the UK labor market and, importantly, a much less dovish MPC than we expected."

"Kathy Lien at BK Asset Management helps explain what is going in the world of FX. The trends and relative stability that have characterised the past few weeks are now being shaken up:

"This week, the Turkish Lira plunged to a record low, the Argentine Peso suffered its largest one-day decline in more than a decade, the South African Rand dropped to its lowest level in 5 years, while the Brazilian Real fell to a 5 moth low. Emerging nations are having a very tough time fighting the outflows

"Unfortunately confidence or the lack of it is not the only reason why investors are abandoning emerging market currencies. In our 2014 outlook, we talked about how this will be the year for DM (developed markets) versus EM because slower growth in China will encourage investors to move money out of emerging market assets, particularly money that is parked in countries that are heavily reliant on Chinese growth.

"Brazil and South Africa supply raw materials to China. Countries with massive current account deficits like Turkey are particularly vulnerable. With Chinese growth expected to slow for the next 5 years, emerging market currencies could underperform for some time to come.

"For the major currencies, the sell-off in global markets could lead to continued risk aversion, which means a deeper sell-off in pairs such as USD/JPY, AUD/USD and GBP/USD ahead of next Wednesday's FOMC rate decision."

The British pound is finding no favours from the Governor of the Bank of England today. Mark Carney has told the Davos forum:

"The degree of stimulus will remain exceptional for some time. That should help reassure British business that the path of interest rate will be consistent with a sustained recovery.

"Many of the headwinds holding back the economy will remain for some time yet. These persistent headwinds mean that, even in the medium term, the level of interest rates necessary to sustain low unemployment and price stability will be somewhat lower than before the crisis."

If markets see no chance of an interest rise in the foreseeable future we can expect Sterling to come under pressure as market readjust their views accordingly.

We are seeing investors shed exposure to Sterling as we head into the afternoon session in London.

Our best explanation is from World First: "General bonkers times in FX land at the moment."

Read our 11:25 entry. Ng adds that GBP/CAD is likely to be a winner going forward:

"Taking into account the divergent data streams and expected central bank postures, we look to the potential for a continued firming of the GBP-CAD (spot ref: 1.8469) in the coming months. A bullish 1X1X1 seagull (strikes at ATMF and 25-deltas) is approximately 0.34% of notional and maximum payoff is around 1: 5.6 if spot drifts to the upper strike at expiry."

More on the theme of shifts in the global markets. Emmanuel Ng at OCBC Bank notes:

"Negative global equities and widening EM risk premiums pulled the FXSI (FX Sentiment Index) into Risk-Neutral territory for the first time in four months. Into the end of the week, although the USD story may continue to hum in the background, global jitters may yet persist, putting a lid on EM FX, the antipodeans, as well as underpinning the JPY intra-day.

"While we note that stress in EM outside of Asia has been idiosyncratic, potentially negative headlines concerning global growth prospects (e.g., including the disappointing China PMI numbers yesterday) may continue to trigger a sympathetic reaction in Asia. In a nutshell, remain cautious towards contagion."

"The GBP remains somewhat of a standout amongst the majors in terms of its out performance. The tug of war between market expectations and the data stream on the one hand and the BOE’s forward guidance (note an attempt by the BOE’s Fisher to downplay overt market expectations of a more hawkish policy stance) on the other hand continues to ensue. Expect a firmer trading range if the pair can persist above 1.6600 multi-session." - OCBC Bank.

A big issue at present concerns fears over Asian growth. The Australian dollar has been a major loser as a result. Should the Asian slowdown accelerate will the British pound benefit from safe-haven flows? We suspect so - the UK's economy is on an upward trajectory and investor confidence in the financial system should serve GPB well.

"The Cable pulled out the former year high of 1.6603 yesterday and extended strength to 1.6660 (at the time of writing) as Europe walked in this morning. GBPUSD consolidates gains above 1.6620. Trend and momentum indicators are solidly bullish, suggesting further room on the upside. Next key resistance is placed at 1.6747 (April 28th, 2011 high)." - Swissquote Bank.

Analysts at UniCredit have given us quite a bit to go on this morning. Regarding the Cable, they say some profit-taking in the British pound may take place:

"The break through the key 1.65 level ignited further buying interest above 1.66, but some book-squaring may be in the offing if BoE Governor Mark Carney remains neutral today when speaking in Davos after his interview with BBC in which he signaled that the BoE will not extend its forward guidance when jobless rate reaches the 7% threshold."

The British pound (GBP) to euro exchange rate slumped in notable fashion through the course of Thursday's trading session. The rate has recovered overnight though. Driving the GBP/EUR lower was a broadly bullish euro: Stronger preliminary EMU PMI surveys lifted EUR-USD above 1.3650.

"A break through 1.37 is the next logical target, but, given the speed of the EUR rise, profit taking is likely to occur before any new assault takes place," say UniCredit in reference to the EUR/USD which should continue to provide impetus to EUR/GBP.

We doubt Carney will offer more in terms of BoE policy, but Draghi is certainly worth keeping an eye on.

Mark Carney signaled an end to the forward guidance policy, stating the BoE will not extend it when unemployment reaches the MPC’s 7% threshold.

"We move our forecast for the first rate hike forward to 4Q14 from 1Q15." - UniCredit

"Citi analysts anticipate that U.K. unemployment rate may fall to 6.4% in Q4 2014 and U.K. GDP may grow by 3.3% this year. Therefore, the Bank of England may raise rates earlier in Q4 2014. This will likely be GBP-positive. Technically, GBP/USD may test higher to 1.6618-1.6747, with support at 1.6381." - Citigroup.