Pound Eyes Data Hurdle Even as Geopolitical Risk Favors U.K.

(Bloomberg) -- The pound’s stellar run could prove vulnerable to data disappointments.

Sterling rallied last week as Donald Trump’s tweets and the dovish account of the March European Central Bank meeting led investors to buy it against both the dollar and euro. This week, strategists say the pound could continue to benefit from global geopolitical tensions, although U.K. data may pull it in the opposite direction.

Pound Eyes Data Hurdle Even as Geopolitical Risk Favors U.K.

“The pound is looking pretty good,” said Jane Foley, head of currency strategy at Rabobank. “But it has to get through the U.K. earnings and CPI data in the coming sessions. These are perhaps the most important numbers in the month right now, given the forthcoming Bank of England meeting.”

The market is primed for a disappointment after manufacturing and industrial production figures last week didn’t live up to expectations, and with the Citi Economic Surprise Index approaching the lowest since September 2017. Leveraged funds have built up the biggest long position on the pound since August 2014, according to the latest CFTC data. This week traders will watch jobs data, inflation and retail sales.

If wage growth is less than forecast, it’s unlikely to affect bets on a May interest-rate rise but could cause the market to pull back on pricing of a second hike in November, according to Foley. This would cause sterling’s recent strength to falter, she said.

Brexit is also set to return to investors’ minds, with the U.K. and European Union sitting down for the first time to discuss their future trade relationship. While the transition deal agreed last month means Brexit is no longer at the forefront of concerns, investors will be watching for developments on the Irish border issue, which the two sides are due to discuss Wednesday.

Still, the pound could continue to benefit from a return to becoming a haven from risk. The threat of further military intervention in Syria may help sterling after the U.K. authorized air strikes with the U.S. and France over the weekend. Prime Minister Theresa May will address Parliament Monday on the strikes.

“Market-wise it’s likely to be risk-off,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA. “So buy the yen and going on recent moves sell the dollar, which might mean higher pound.”

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