Pound Sterling Retreats Against Euro and Dollar as Long Positions Trimmed

March 19, 2024 - Written by John Cameron

STORY LINK Pound Sterling Retreats Against Euro and Dollar as Long Positions Trimmed

The Pound to Euro exchange rate (GBP/EUR) was unable to make headway on Friday and retreated below the 1.1700 level on Monday to trade around 1.1685.

MUFG is still backing a medium-term GBP/EUR move to 1.2085.

The Pound has been hampered by speculation that the Bank of England (BoE) will adopt a less hawkish stance at this week’s policy meeting.

COT data released by the CFTC reported an increase in long, non-commercial Pound positions to over 70,000 contracts, the largest long position for at least 15 years.

This imbalance will increase the precautionary risk that long positions will be cut into the BoE meeting.

This will be a very important fundamental week for the Pound with important data releases as well as the BoE interest rate decision.

As far as data releases are concerned, the latest inflation data will be released on Wednesday.

Consensus forecasts are for the headline inflation rate to decline to 3.5% from 4.0% previously with the core rate retreating to 4.6% from 5.1%.

The UK will release the latest retail sales report as well as the latest PMI business confidence data.

The latest UK labour-market data recorded a slowdown in wages growth which has encouraged market speculation that the Bank of England could start cutting interest rates in June, alongside the ECB, rather than waiting until August.

MUFG expects the BoE will maintain a cautious stance.

According to the bank; “we are not convinced that the BoE will signal at next week’s MPC meeting that it is moving closer to cutting rates.”

It added; “Further evidence of slowing core and services inflation alongside moderating wage growth will be required to give the BoE more confidence that they can start to cut rates.”

MUFG also considers that the January GDP data supports BoE optimism that the UK technical recession will be short-lived and limited.

ING expects little overall change in the BoE stance.

The bank commented; “After dropping its hawkish tone in February, we don’t see the Bank being in any rush to take further steps to the dovish side of the spectrum just yet, at least barring a major downward surprise in CPI on Wednesday.

According to BNP Paribas; "We think the BoE will steer clear of indicating when it will likely start cutting, retaining its neutral guidance from February.”

As far as GBP/EUR is concerned, the relative performance of the UK and Euro-Zone economies will be a key element.

MUFG is sticking to its call that the ECB will cut interest rates ahead of the Bank of England which will underpin the Pound.

The bank also considers that favourable carry conditions will also help underpin the Pound and keep the Euro under pressure against the Pound.

Rightmove reported that UK house prices increased 1.5% for March, above the average March increase of 1.0% and the strongest increase for 10 months.

Rightmove’s Director of Property Services Tim Bannister commented; “It’s been a positive first three months of the year for the market and better than many anticipated. However, we know from last year how quickly the picture can change.”

The data will maintain net optimism surrounding the UK economic outlook.

Markets expect a small improvement in the Euro-Zone with little net change in the UK PMI data with the services sector remaining in expansion territory.

Germany will also release the latest IFO business confidence index with a small improvement expected for March.

ING added; “Ultimately, the pound may absorb any further recovery in the dollar better than most other currencies, and we see EUR/GBP trading closer to the big 0.8500 support in the short term.”

According to Credit Agricole; “FX investors will focus on the preliminary Eurozone PMIs and the German IFO for March. With some positives related to the improving Eurozone outlook already in the price of the EUR, we think that the currency could be vulnerable to any potential downside surprises from the data.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts Pound Euro Forecasts Pound Sterling Forecasts