Today’s UK data provided a mixed picture of the UK economy, with the services PMI for September surprising to the upside at 52.9 (consensus 50.5), while the final estimate of Q2 GDP was revised down to 0.1% from 0.2%. Nonetheless we believe this will be sufficient for the majority of the MPC to wait until November before voting for QE. With CFTC data suggesting the market remains substantially short GBP, we believe that if the MPC does not announce QE tomorrow, a short squeeze is likely. This suggests short-term upside risks for GBPUSD.
Longer term, however, we remain bearish on GBPUSD. Despite today’s upside surprise from the service sector PMI, the UK economy remains weak. For example, looking at the quarter as a whole, the performance of each sector deteriorated from Q2 – a quarter which today’s data suggested grew at just 0.1%. This keeps a return to the asset purchase programme in November firmly on the cards. Second, the euro area debt crisis remains unresolved. We expect this to continue to weigh on all European currencies versus the USD.
Consequently, we continue to forecast GBPUSD at 1.51 in three months and recommend investors fade GBPUSD rallies.
BARCLAYS CAPITAL
FOREIGN EXCHANGE RESEARCH | INSTANT INSIGHTS