Economic data coming both from the UK and the US imply economic strength despite higher interest rates. With stronger than expected UK’s PMI data and US’s ISM data coming stronger than expected both the Fed and BoE should feel no pressure to lower the rates anytime soon. Looking at the financial data however, things seem to be in favor of GBP. The spread between inflation expectations of the US and that of the UK – the green line – suggests that the Dollar may be weaker against the GBP. Furthermore, speculators’ net positions – the red line – also increase in favor of GBP, suggesting that speculators continue to build new GBP long positions. Finally, with UK’s Financial Conditions Index going higher shows that the GBP is strong and traders do not have much incentive to close their positions.
