GBP Index & Upside Econ Surprises

by Ashraf Laidi
Feb 21, 2020 13:14

In a phase when unwinding of carry trades and risk-repositioning dominate FX markets, beware from excessive divergence from the data. US data continue to deliver its share of mixed showing, but the recent upside surprise from the UK (CPI, retail sales, PMIs and industrial production) cannot be ignored. Their impact is highlighted by the charts below, where the UK surprise index narrows the gap with its US counterpart. Recent GBP losses have partly been triggered by safe haven flows chasing US treasuries and gold, hence dragging down US yields across the board. The result has been further improvement in UK-US yield gap, which in the longer-run provides support for GBPUSD. Looking at GBP from a multi-currency perspective, the Bank of England's trade-weighted index shows GBP remaining supported along a crucial technical foundation. Look out for 1.3060 as the immediate upside target on cable.

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GBP Index & Upside Econ Surprises - Citi Index Uk Us Eu Feb 21 2020 (Chart 1)

 

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