FUNDAMENTAL ANALYSIS How sound is the Pound?
FX
Despite being the best performing currency in G10 over the past year, recently the pound has lost some of its shine. This has little to do with idiosyncratic factors and more to do with changes in short term rate spreads against the USD in particular.
Amongst the majors GBP has been the
best performing
currency within the G10 complex since March of 2013. Clear improvements in UK economic activity along with improving real yields were the main drivers of sterling’s renaissance.
The question is whether these underlying improvements have
in any way changed to warrant a reversal in sterling’s fortunes? The answer is no. PMI data continue to print close to all time highs, whilst surveys of consumer and business and sentiment illustrate a broadly improving profile. UK economic surprise indices still point towards positive
economic growth. So, what is behind the pound’s recent poor performance?
The answer is quite simple; the Fed. The March Fed meeting at which the FOMC gave their assessments regarding
the
immediate and medium term projections for interest rates was noteworthy in that 10 of 16 participants said that they thought
rates would be at or FX TRADER MAGAZINE April - June 2014 15
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