14.04.202607:24 Forex Analysis & Reviews: Pound Takes Advantage of the Opportunity

The British pound notably strengthened last week, responding to the ceasefire between the U.S. and Iran and to improved market sentiment on global risks. The reaction to the unsuccessful conclusion of negotiations was restrained and short-lived; it is already clear that both warring parties are ready to end hostilities, and the only question is the terms under which the war will end.

The BRC retail sales index rose from 0.7% to 3.1% in March, significantly exceeding forecasts. This is a positive signal for the pound, supporting its strengthening; however, it is the only one, as no economic data was published last week to clarify the UK's economic situation. The expected rise in inflation will also be a bullish signal, as it will put pressure on the Bank of England to tighten monetary policy. The labor market looks significantly better than in the USA – the unemployment rate has been declining since the beginning of the year, the number of jobs is increasing, and wage pressure is decreasing.

The pound's exchange rate is currently mainly determined by events in the Middle East. Regarding domestic data, several releases are scheduled for Thursday, which will allow an assessment of the current state of the UK economy. Among them are GDP data for February and the NIESR forecast for GDP growth, which will also include calculations of the impact of the situation in the Middle East on the country's economy, as well as a report on industrial production. For now, it must be assumed that the pound is directly dependent on risk demand dynamics.

An official visit by Trump to China is scheduled for May 14-15, having been previously postponed from March 31 due to the war in Iran. The U.S. still faces the task of restraining China's rapid growth, and Trump was likely hoping that by the time of this visit, he would have additional leverage, namely control over oil supplies to China from Iran. This goal has not been achieved; moreover, yesterday, Chinese Defense Minister Admiral Dong Jun stated that Chinese ships will freely pass through the Strait of Hormuz, despite the U.S. blockade. This is a rare demonstration of strength from China, and the dollar's exchange rate against the yuan dropped to a three-year low on Tuesday morning. This is a clear sign that China is ready to respond to the threat and maintain a strong position; at the same time, it signals to other countries that the dollar currently lacks real strength and the trend for its strengthening may have already ended.

Speculative positioning on GBP remains bearish with a net short position of -4.7 billion, while the calculated price confidently moves upward.

Last week, we noted that the pound had a good chance of a corrective upward move. The pound took advantage of this opportunity, surpassing the target of 1.3479, and the momentum is strong enough to continue the movement. It is worth noting that, from a technical standpoint, there are no significant resistances up to 1.3867; we expect continued growth amid an increasingly evident weakness in the dollar.