View from the dealing floor. Tarik Chebib works on IG’s dealing floor in London. Visit: https://www.ig.com/uk for more information.
Friday January 17 saw the pound lifted by strong retail figures. Retail sales in December climbed to 2.6% from 0.1% in the previous month beating expectations of 0.4%. Even better were the year-on-year figures in December which improved from 1.8% to 5.3%.
This took most market participants by surprise and lead to a 100-pip jump to 164.46. The pair closed the week at 164.18, not able to close at the top of its move earlier in the day. The pair had started the week at 164.85.
Looking at the previous six weeks, one can see multiple attempts of the pair to break out of the 163.00 – 1.65 area. However, GBP has not been able to sustain outbreaks above 165.00 for too long thanks to the resilience of USD a sign that both economies have clearly turned the corner.
This leaves traders with a dilemma on how to position themselves.
Certain analysts are predicting the pound will reach 168.00–170.00 in the short-term, while others favour the US dollar.
A deciding factor in the upcoming weeks could be the tightening of fiscal policy, and the timings of such moves, on either side. Every time there are signs of an improving economy, the pressure increases on Bank of England (BoE) chief Mark Carney to increase interest rates earlier than the markets expects.
In the US, the improving unemployment situation and better economic climate has many calling for the Fed to continue and perhaps accelerate its tapering programme.
With so much uncertainty about there is every chance of further volatility in the next few weeks.
Meanwhile, official UK unemployment figures are due out on Wednesday. It seems likely that there will be another fall close to the government’s target of 7% from its current rate of 7.4%.
The minutes from the last meeting of the BoE’s Monetary Policy Committee are also due to be released on Wednesday. Analysts will be looking for clues as to the direction of future policy.
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