Synopsis:
Credit Agricole warns that the GBP may face further downside as investors take profits on long positions, particularly in light of upcoming UK economic data.
Key Points:
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Impact of Incoming Data:
The quality of forthcoming UK data, especially GDP numbers for August, is expected to be a critical driver for FX markets. Investors will closely monitor these figures to gauge the relative policy outlook of the Bank of England (BoE) compared to other central banks, such as the Federal Reserve. -
Recent Economic Trends:
Recent downward revisions to past GDP growth figures, alongside signs of stagnation in the UK economy during June and July, heighten concerns about the economic recovery. Any further indication that the BoE's restrictive policy stance and the Labour government's planned fiscal austerity are stalling growth could negatively affect GBP sentiment. -
Market Reactions:
If the UK rates market shifts towards a more dovish outlook for the BoE, this could lead to increased vulnerability for GBP, particularly as investors may look to take profits on their long GBP positions.
Conclusion:
Credit Agricole suggests that the GBP's outlook remains precarious, with potential downside risks as profit-taking on long positions intensifies. The upcoming GDP data will be pivotal in shaping market sentiment and influencing expectations regarding BoE polic.