I Was Wrong About GBP

The British Pound has been showing underlying strength in recent months, I’m looking for opportunities to buy GBP against weaker currencies. I must admit a few months ago I was on the thought that the UK or GBP could suffer down to stagflation, but recent data is flipping that narrative now. 

Let’s break down 4 reasons why I like GBP longs. 

1. Strong economic data

The UK economy data has been surprising to the upside, and it’s not just one or two indicators coming in stronger.

Some of the key economic indicators outperforming include:

• GDP Growth has slowed but it’s not slowing as most forecasted. The previous month GDP came in at 0.5%, and was forecast to come in lower at 0.0%, however, we had a 0.2% print. So, not as bad as expected.

• Retail Sales shocked to the upside by a substantial margin. Now retail sales have been flip flopping slightly, but today the number came in at 1.2%, beating forecasts of 0.3%. This tells us that consumers aren’t necessarily feeling the impacts of slower growth yet. 

• Inflation remains higher, CORE CPI y/y came in at 3.8% way higher than targets for 2-3%. This also shows us that demand is there, because prices aren’t coming out. 

2. Hawkish Bank of England

The Bank of England recently cut interest rates by 25 basis points to 4.25%, however, recent inflation numbers surging higher begs the question why are they cutting at all? One of the main central bank mandates is price stability, yet the central bank seems to be struggling between picking up growth and slowing inflation pressures.

We even saw this in the Monetary Policy Committee (MPC) votes, the format of X-X-X tells us how the members vote. The first number is how many members wanted to increase rates, second is how many voted to decrease rates, and the third is how many members wanted to hold rates. The numbers came in at 0-7-2, telling us that two members wanted to leave rates unchanged. So, it wasn’t a unanimous vote at all. 

3. Strength returning

The currency strength meter shows the GBP regaining its strength as it moved from +1 to +3 last week. This change brings the GBP back into the spotlight for me for long opportunities. This makes the GBP the 3rd strongest currency out of the G7. 

When we look at the GBP/USD chart we can see that the price is now trading above the key 1.3400 resistance and the highs which formed in September 2024. A close above this level would signal further strength to come from a technical perspective. 

4. Weakness in other economies

When trading the currency market, we deal in forex pairs, so we need to identify what currencies are getting weaker in order to find viable trading opportunities. Simply, we want to pair a strong vs a weak currency. 

The weaker currencies I like include:

• EUR

• JPY

• CHF

With risk sentiment improving witnessed by the positivity in global stock markets and other risk assets like Bitcoin, the Japanese Yen and Swiss Franc could become weaker. Euro weakness remains in the near term, and with upcoming trade negotiations in the US could become a sticky situation putting pressure on the Euro. 

Final thoughts

With all these confluences put together from solid macroeconomic data surprises, a central bank turning a little more hawkish due to surging inflation, technical breakouts, the GBP is looking to offer some decent opportunities in my eyes.