EURGBP has had quite an affair with the 0.8600 level over the last couple of months, but the latest rally may finally lead to the pair pulling through that level and testing the highs for the year.
Today’s sharp downard revision of the UK’s current account deficit reminds us of the tremendous structural problem with the UK, which has the largest current account imbalance among the major developed economies as a percentage of GDP, and it’s remarkable that the last several years of GBP weakness has done virtually nothing to shore up its terms of trade. Also likely weighing on sterlng as we consider the path ahead is the imminent arrival of the Bank of England’s new governor, Mark Carney.
Meanwhile, the Euro managed to pull back against sterling today perhaps because peripheral spreads have tightened sharply over the last couple of days, taking the edge off recent EU tail risk fears.
Chart: EURGBP
The momentum within the range is impressive, but over the last couple of months the 0.8600 level has contained the pair, so it needs to prove that it can take out the 0.8600 level and maintain above there. If so and if the EU can stay out of “systemic risk” trouble, we could see the pair trading up toward the 0.8800+ level in the weeks ahead.
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