GBP: trapped within UK politics and data – Danske Bank

Senior Analyst at Danske Bank Morten Helt assessed the prospects for the Sterling in the short term horizon.

Key Quotes

“EUR/GBP dropped back below 0.8950 on Friday as UK Prime minister Theresa May rejected all indirect demands for her stepping down as PM, saying that she has the full support of the government”.

“Brexit negotiations resume today in Brussels and politics (both domestic UK and Brexit) are likely to be the key driver for GBP this week. In an interview with the Sunday Times, May indicated that she could soon be planning to reshuffle the cabinet and there have been unconfirmed media reports on whether Boris Johnson is in the firing line. If Theresa May manages to reassert her authority, it would be positive initially for GBP but is unlikely to have a longer lasting effect on GBP due to the still high Brexit uncertainty”.

“As such, we still expect EUR/GBP to remain trapped in the high end of the 0.89 figure ahead of the two key data releases in relation to the expected BoE rate hike in November: the September CPI figures (due on 17 October) and the labour market report (due on 18 October)”.

“However, note that the latest IMM data showed a significant build in speculative long GBP positions last week and positioning is now long GBP at the highest level recorded since July 2014. Hence, from a positioning point of view, risks still remain skewed to the upside near term for EUR/GBP”.