British Pound Creeps Higher Despite Weak UK Data - Time to Buy?

[DailyFx]

The British pound climbed throughout the trading day following Monday’s test of 1.75 as COT forex positioning shows that the currency remains oversold and other indicators suggest potential GBP/USD buying opportunities.



However, UK economic data remains overwhelmingly bearish, as UK industrial production failed to rise for the fifth consecutive month in July as mining, quarrying, oil, and gas output drops. The news comes on the tails over yesterday’s weaker-than-expected producer price numbers, which indicated that the Bank of England may be able to let their guard down sooner rather than later when it comes to inflation risks, especially since the central bank is already grappling with the issue of a rapidly deteriorating economy. This is much of the reason why Credit Suisse overnight index swaps are pricing in nearly 100bps worth of rate cuts by the Bank of England over the next 12 months, and if the official UK CPI numbers (due to be released on 9/16) signal that inflation is not accelerating as quickly as they expected, the central bank could start reducing interest rates before year-end. Thus, from a fundamental perspective, downside risks remain for the British pound, but from a technical perspective, I believe GBP/USD is due for a bounce from current levels.