– GBP may squeeze higher, but bounce to 1.53-1.54 should be contained
Sterling has been supported by a rebound in retails sales in Feb with the headline reading jumping 2.1% m/m vs. market expectations of +0.4. Over the days ahead, the technical picture and positioning suggest that GBPUSD could squeeze higher. Our technical analyst indicates that a head and shoulders base pattern is emerging and that GBPUSD could rebound towards the 22 Feb high of 1.5317. Beyond this, we expect the BoE mandate to prevent a GBP rebound from gaining too much traction. Changes in the remit include a request that the MPC sets out in its communications the horizon over which the Committee judges it is appropriate to return inflation to the target and also communicates the trade-off between inflation and output that has been taken. Our economists highlight that this framework will allow for the BoE to pursue a temporary dual mandate and further monetary easing. Our economists’ call for more QE (GBP 100 Bn over a year from August) therefore remains intact and this should contain the bounces in GBPUSD to the 1.53-1.54 area.
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BNP Paribas