GBP slightly weaker, underperforms G10 currencies – Scotiabank

The Pound Sterling (GBP) is soft, down a modest 0.2% but underperforming most of the G10 currencies as we head into Friday’s NA session, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret report.

BoE signals dovish stance amid uncertainty on neutral rates

“This week’s price action has been mixed, and broadly driven by external developments in the absence of high-level domestic data. Domestic risk returns next week as we look to industrial production and trade, as well as scheduled appearances from BoE MPC members Taylor and Ramsden. Comments from the BoE have been limited in the new year, though messaging has largely leaned dovish with uncertainty about the central bank’s proximity to ‘neutral’ rates.”

“Finally, we see some added near-term risk from the turn in sentiment as we note the signs of exhaustion in risk reversals stalling out after fading a considerable portion of the premium for protection against GBP weakness over the past month or so.”

“This week’s price action has been mixed with a clear bearish reversal from a short-lived multi-month high in the mid-1.35s. Momentum indicators remain close to neutral as the RSI hovers around 50. We remain neutral absent a clear break below the 200 day MA (1.3393), after which we see risk of an extension to the 50 day MA at 1.3304. We look to a near-term range bound between 1.3380 and 1.3480.”