Although the GBP depreciated this week, it continues to trade within the last few weeks trading range. While a constructive growth outlook is keeping inflation and rate expectations supported, intact Brexit fears are keeping fresh buying interest low. From that angle we see limited scope of next week’s inflation data and BoE monetary policy announcement to prove a major currency driver.
When it comes to the BoE actual growth and price developments should remain the main focus. Firm domestic conditions have been keeping medium-term price expectations, as indicated by 5Y forward breakeven rates, well supported. As such there is limited room of changing rate expectations.
Under the above outlined conditions we expect the GBP to remain range-bound in the weeks to come. Even if Brexit fears were to rise further, elevated speculative short positioning is keeping the downside limited.
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