What Could Drive Sterling Above 1.56?

We hear from Kathy Lien at BK Asset Management who has just given her views on the outlook for the British pound this week:

"In the U.K., Wednesday's employment report and Thursday's retail sales release are important but the real market mover should be the Bank of England minutes. The central bank left monetary policy unchanged but the main question is how many MPC members voted in favour of more asset purchases, if any at all AND also how many members voted for the new unemployment rate threshold.

"If we learn that some members voted for additional asset purchases and the decision for an unemployment rate threshold was unanimous, the GBP/USD could experience additional losses.  However if no one favoured more QE and some members opposed the threshold, which was the BoE's attempt to stress their plans to keep monetary policy very easy for a very long time, the GBP/USD could break above 1.56."

Shaun Osborne at TD Securities says he sees solid support remain for GBP/USD and any comeback by the US currency could be significant:

"The fact that GBP/USD was not able to close above its 200-day moving average, and that EUR/USD was not able to make a weekly close above key trend resistance near 1.3345 means that there is still some important USD support that remains intact.

"That keeps our bias toward the USD retracing some of last week’s loses, and for both the GBP and EUR there appears to be at least a big figure or two that we could see fairly quickly."  

Has the US dollar overshot to the downside?

Stephen Gallo at BMO Capital Markets has said the US dollar could be oversold when we consider recent discussions of US Federal Reserve tapering:

"USD strength comes on the heels of a week in which Fed-speak, on balance, seemed biased towards Fed tapering rather than Fed stimulus. Out of four Fed speakers last week (Fisher, Evans, Pianalto and Lockhart), all four (including arch-dove Evans) mentioned the risk of Fed tapering before year-end.

"Taken at face value, these comments appear to have a lot of “re-oreintating value”, in the sense that their timing has punctuated what appears to have been a modest overshoot to the downside in the USD, and helps maintain financial markets at large on an overall course for Fed tapering in a “non-hawkish” manner."