The Pound extended higher on data, suggesting a post-UK-election rebound is afoot. This saw Sterling print respective 5-day and 2-week highs against the Dollar and Euro.
January’s CBI Industrial Trends Survey showed business optimism to have leapt to a reading of +23 from -44, although headline activity remained low. This followed yesterday’s above-forecast UK labour report. The readings will add to hopes for a strong preliminary PMI report on Friday, which would undermine any argument for a rate cut from the BoE.
Meanwhile, data have been descaling expectations for the BoE to cut rates and Cable capped Friday’s resistance around 1.3117, pushing further to the upside on the back of a reduction in probabilities of a rate cut from 70% to less than 50%. The BoE is expected to refrain from cutting rates at this juncture, and instead opt to ratchet up dovish guidance. Policymakers will still be looking to see the full impact that the lifting of Brexit and political fog has had since the election in mid December, especially with the global economy looking to be holding up, and with the government set to pursue a more expansive fiscal policy.
The next UK data of note will be the flash January PMI survey on Friday, after the BoE decision, which should show a rise in the composite headline to 50.5, from December’s 49.5 reading. This matches the consensus forecast. Note that the latest week CFTC data showed the longest net long positioning in sterling futures by speculative accounts since April 2018, which seems to reflect expectations for there being a post-election lift in economic activity in the UK.
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Andria Pichidi
Market Analyst
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