GBP Stalls Despite Strong Data Amid BoE Expectations
The British Pound (GBP) has been experiencing mixed results against the US Dollar (USD), with strong UK data failing to lift the GBP. According to Scotiabank strategists Shaun Osborne and Eric Theoret, the GBP is slightly higher versus the USD but lags behind most G10 peers.
Despite positive numbers from the United Kingdom's retail sales and Purchasing Managers' Index (PMI) surprises, market participants are not responding to fundamentals. This is due in part to expectations of a hawkish hold by the Bank of England (BoE) next week, which would maintain interest rates and potentially lead to modest tightening by September and November.
The options market appears to be signaling renewed demand for protection against GBP weakness, with a clear turn from last Wednesday's local peak. This is likely due to a combination of geopolitics and domestic political concerns, which are generating an increase in UK government bond yields and threatening the UK's overall fiscal situation.
The RSI remains close to neutral as the GBP softens back toward the midpoint of its range from mid-June, with local support found at 1.3150 and resistance at 1.3550. The strategists had anticipated some nearer support closer to 1.3350 but now look to 1.3300 as a limit to short-term weakness.