Sterling: the big-picture view

Sterling had a lot to contend with last week in terms of both data and policy makers' comments. Ex-Monetary Policy Committee (MPC) member De Anne Julius said on Tuesday (October 15) that the UK should cut rates to deal with the threat of deflation. But inflation data came in that day -- higher than expected -- indeed core service sector inflation is running at 6%.

Adding to the mix were reports that Bank of England Governor Edward George had suggested UK rates had troughed, followed by reports that he had said rates may have to be cut.

Policy-makers aside, the news on the economic front seemed to be robust, with healthy employment growth and signs from the Royal Institution of Chartered Surveyors that the UK housing market continues to power ahead.

However, the British Retail Consortium (BRC) sales monitor indicated the economy was slowing. Against this background the equity markets are showing some of their strongest short-term rallies for decades, while the bond markets were being punished.

The point is -- under these type of contradictory conditions one needs to take a big-picture strategic view. In our eyes, sterling on a trade-weighted basis looks the pick of the bunch. Firstly, the prospective relative economic performance of the UK economy looks increasingly good, against the ugly sisters of Japan, the eurozone (particularly Germany) and the US. Secondly, EMU entry for the UK now looks likely to be delayed at least until the next parliament as the balance opinion polls in the UK remain resolutely against entry. Although opposition to the euro faded a little at the beginning of the year, it has firmed again in recent months.

These conditions give sterling scope to rally against the big three and we believe one should have a strategically long sterling position.

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact customer services - www.fx-markets.com/static/contact-us, or view our subscription options here: https://subscriptions.fx-markets.com/subscribe

You are currently unable to copy this content. Please contact info@fx-markets.com to find out more.

You need to sign in to use this feature. If you don’t have a FX Markets account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: