Pound Rally Is Vulnerable to Correction This Week, Say Analysts

(Bloomberg) -- The pound’s winning streak means it could be vulnerable this week, strategists say.

Sterling has gained more than 5 percent this month, hitting a post-Brexit vote high above $1.43 last Thursday, and the test now is whether it can stay at these levels. Industrial data, Brexit news and testimony from Bank of England Governor Mark Carney all have the potential to hurt confidence in the pound.

Pound Rally Is Vulnerable to Correction This Week, Say Analysts

“It will be interesting if the new month sparks a change of direction,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA. “People may take profit on cable and sell in February.”

A speech from the EU’s Chief Negotiator Michel Barnier on Monday could wake investors up to ongoing Brexit uncertainty, said Bennett. Testimony from Carney to U.K. lawmakers could also spark pound selling, according to Credit Agricole CIB’s head of Group-of-10 currency strategy Valentin Marinov. 

The U.K. economy has been resilient with the Citi surprise index remaining above the zero mark since October last year. Investors will be keen to know whether the recent strong data and fading of hard Brexit fears have changed the central bank’s outlook, with Carney saying last week that Brexit has already cost the the U.K. economy billions in lost output.

“A more cautious-than-expected Carney could have a disproportionately greater negative impact on the pound,” said Marinov. “We therefore advise caution in chasing the latest rally in the pound into next week.”

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