British Pound: Can Its Modest Lead Over the US Dollar Hold? – Societe Generale

The British Pound (GBP) is gaining a slight advantage over the Dollar as stronger United Kingdom (UK) economic data and the Bank of England (BoE) outlook lend support, according to Societe Generale strategists. With unemployment at a 13‑month low and average earnings edging up, expectations of a BoE rate hike to 4% in November have strengthened. The strategists also see scope for short covering and favourable year‑end seasonal trends to support sterling after the Autumn Budget.

Can the BoE Outlook Keep Sterling Supported?

"UK average earnings growth also picked up ever so fractionally in the private sector and will strengthen the hand of the MPC hawks at the BoE who back higher rates now to avoid having to deal with second round effects later."

"The logic that the labour market is loosening has been driven by the fall in vacancies, down 5.1% yoy, but both real and nominal pay have been stable. With oil prices climbing to the highest levels since May, there is little that will stop the BoE from raising rates in November to 4%."

"The feedback from the ONS Vacancy Survey is that smaller firms may not be recruiting because of increases in labour cost. The run-up to the Autumn budget has in previous years typically been accompanied by investors liquidating GBP/G10 but the stronger macro backdrop and BoE outlook are giving the pound a slight edge over the dollar and the euro."

"The price action suggest the accumulation of CFTC short positions has gone too far. The pound could be in demand on short covering and if bullish year-end seasonals re-establish themselves after the Budget next week. UK CPI is published tomorrow."

"Support 1.3270, resistance 1.3400. EUR/GBP bounce sold, support 0.8393 before 0.8370."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)