Analysts warn, be careful of pound's recent strength

Financial and commodity markets analytics

After making several runs for the $1.4250 mark over the last few months, the British pound has finally managed to break through this stubborn resistance level and is now eying the most recent high of $143.50 reached in late January.

If it also manages to break this level, it will mark the 2nd highest position since the Brexit vote and may leave the door open for further gains which will bring it within reach of levels before the UK voted to leave the EU.

Even retail sales data from the US released today from the US, which showed a figure of 0.6 percent against analysts’ expectations for a figure of 0.4 percent failed to dent enthusiasm for the pound, and it seems that currently the Sterling is the favorite of the forex markets.

Many are attributing the gains to rate hikes that are expected to be delivered by the Bank of England this year, with the first one predicted in May and depending on who you asked, is already 100 percent factored into the market.

Some say the pound has risen strongly on the assumption that the BOE will lift rates more than once this year to bring down inflation, which is currently running at nearly 3 percent, which is well above the central bank’s target rate of 2 percent.

Some say however that investors should be wary of taking positions in the pound on the basis of more rate rises after may because that scenario is is far from a done deal.

"We don’t buy into the current market pricing of Bank of England and while a hike in May seems settled, there is no big reason to expect Bank of England to hike anytime soon thereafter. Therefore, we are also very skeptical about the fundamentals behind the recent GBP strengthening," Andreas Steno Larsen, senior strategist at Nordea Bank.


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