The pound continued its rally post elections as FX traders continue to cover short GBP positions adding to the euphoria after the Conservatives won the elections last week. FX traders have noted that the market has been covering long USD positions from 1.5200 all the way through 1.5700 yesterday. The GBP has settled this morning opening at 1.5665 ahead of the labour data at 9.30am and the inflation report due at 10.30am today. With unemployment expected to fall 0.10% to 5.50% and Carney again commenting on the CPI numbers, the market is likely to ease up on the pressure to cover short USD. Having said that there is still a large USD holding and any further rally in the pound could see the GBPUSD drive up towards the mouth-watering 1.60 handle. I think if this does happen you should seriously consider either entering into short GBP positions or if you need to convert into USD (and EUR) you should act quickly. The situation in Greece is behind my thinking and if Troika and Greece’s creditors pull the plug you could very well see the USD mount a serious rally taking the GBP lower. Yesterday saw amazing Industrial Production data released increasing 0.50% month on month. This will give the UK’s Q1 GDP a boost and again reinforcing the amazing work the Chancellor and BoE have achieved in driving the UK economy higher. It is no wonder business leaders voted Conservatives.
Greece’s woes sent a shiver down the stock markets yesterday as the pressure rises to boiling point ahead of the Eurogroup’s meeting later this week. While I have noted that GREXIT is simply not an option, I think Troika, the IMF and ECB are slowly losing patience with Tsipras and his party poopers. As the German FM has noted, the Syriza party are a bunch of amateurs who have little to no experience in finance and how to balance the books. How they continue to reject reform and austerity is baffling. How many times have we heard the German FM repeat his concerns. Surely at some point like a boxer’s corner, the towel “will be thrown into the ring”. Unless reforms and austerity (just like we have seen in just about every major economy globally) is forthcoming I fear the writing might be on the wall and the IMF/ECB will have to allow Greece to default and leave the EUR/EU. That will be a financial atom bomb given that we have never seen something like this before. No doubt the USD & Gold will be the ultimate winners as Greek banks fold and Caesar returns to lead the country. In fact here is a suggestion, Chancellor Osborne could spend the summer in Greece and sort things out.
German GDP came out this morning and disappointed. The data showed the the economy rising 0.30% after last 1/4’s 0.70% rise. Austerity continues in the EU (€1tn) and Pres Draghi must ensure the EU begins to grow independently as is the case in the USA. Only problem is the EU started 3 years too late!!
As for the short term I think other than a Greek default the USD is likely to trade in a narrow range ahead of the much anticipated US rate rise in September. I think the market is unlikely to get ahead of itself and will in all likelihood start rebuilding long USD positions at the start of the summer. For now then lets get used to the GBP trading on a 1.50 handle Ag the USD, high 1.30’s Ag the EUR and the EURUSD above 1.10. The world is focussed on Greece (yet again). How it turns out is anyone’s guess. Let us all hope there is a rainbow in the end.
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