9 Jul 2013
Flash: GBP vulnerable to soft UK data – RBS
FXstreet.com (New York) - The tone of the July statement has left the GBP/USD approaching three-year lows, notes the FX Strategist Team at RBS.
The move hasn't all been about GBP as the USD has been recovering on the Fed tapering expectation. In this sense, the GBP/USD hasn't got much bang for the UK's 'better economic data' buck. “With recent high frequency data pointing to Q2:13 GDP growth of 0.7% QoQ, it's hard to imagine UK data getting much better from here. Demand from corporate hedging activity may slow the pace of decline. However, the longer we stay at current levels, the quicker this hedging demand will be filled. This increases the downside risks for GBP if/when the data start to soften once again.” the team adds.
The ECB and BoE were both singing from the same hymn sheet last week. The "we never pre-commit" mantra of the ECB is finally dead. The next step is that if market rates rise, the ECB will look to cut the refinancing/deposit rate. At the same time, there are emerging political risks, most notably around Portugal and Greece. Offsetting the negatives are a solid BoP position and a shrinking ECB balance sheet. “We remain neutral on the EUR/GBP, although risks are skewed modestly to the upside short-term. These risks are seen moving to the downside in and out of the German elections.” they add.
The move hasn't all been about GBP as the USD has been recovering on the Fed tapering expectation. In this sense, the GBP/USD hasn't got much bang for the UK's 'better economic data' buck. “With recent high frequency data pointing to Q2:13 GDP growth of 0.7% QoQ, it's hard to imagine UK data getting much better from here. Demand from corporate hedging activity may slow the pace of decline. However, the longer we stay at current levels, the quicker this hedging demand will be filled. This increases the downside risks for GBP if/when the data start to soften once again.” the team adds.
The ECB and BoE were both singing from the same hymn sheet last week. The "we never pre-commit" mantra of the ECB is finally dead. The next step is that if market rates rise, the ECB will look to cut the refinancing/deposit rate. At the same time, there are emerging political risks, most notably around Portugal and Greece. Offsetting the negatives are a solid BoP position and a shrinking ECB balance sheet. “We remain neutral on the EUR/GBP, although risks are skewed modestly to the upside short-term. These risks are seen moving to the downside in and out of the German elections.” they add.