GBP: Limited Upside Risk On Balanced Positioning; A Sell On Rallies
The GBP has been capped as of late mainly on the back of weaker-than-expected inflation and labour data. Elsewhere, relatively stable medium-term inflation expectations, as measured by 5Y inflation swaps, suggest that price expectations remain firmly anchored. If anything, that means that the BoE will continue to link its monetary policy stance to the long term growth uncertainty. Strongly capped BoE monetary policy expectations, continuing uncertainty regarding Brexit as well as more balanced speculative positioning suggest GBP upside from the current levels will prove limited. We stay in favour of selling rallies. In terms of data, this week’s focus will be on Q4 GDP, which we expect to have limited impact on the currency, especially since this week’s data will be a revision. which we expect to have limited impact on the currency, especially since this week’s data will be a revision.