GBP: Different Brexit trading environment - ING

Viraj Patel, Research Analyst at ING, suggests that while one may be inclined to chalk down GBP’s bullish bias of late to seasonal factors, they’ve also been noting how 2018 is very much a different Brexit trading environment for the pound.

Key Quotes

“Gone are the days of noisy Brexit headlines stirring sharp – and almost sentimental rather than fundamental – knee-jerk moves in the currency, with the buffer of last month’s Brexit transition deal buying GBP investors some extra time to assess the Brexit facts. And with the next stage of negotiations surrounding a future UK-EU trade deal set to be long-winded and complex, it appears that we’re back to good old-fashioned UK data watching to determine the short-term direction for the currency.”

“The week ahead shouldn’t disappoint here given the array of key data releases to watch out for – including the latest UK labour market report (Tue), CPI data (Wed) and retail sales (Thu). We think signs of firming wage growth next week may seal the deal for a May BoE rate hike – though it is the UK activity side that may hold the key to GBP’s cyclical re-pricing. Our base case remains for GBP/USD to move up to 1.45 in 2Q18 – while risks are that our EUR/GBP year-end target of 0.85 is met much earlier (with the EUR rendered directionless for now).”