The British pound has been consolidating for the past week and the contracting range signals that the currency is prime for a big breakout.
Our technical analyst believes that the breakout will be to the upside which aligns well with today’s sharp reversal in US stocks. Having been down over 200 points intraday, we may now see another 200 point rally in stocks. Over the medium term however, UK rates are still headed lower and we believe that fundamentally, weakness should still be the dominant trend in the British pound. UK economic data has been mixed with construction sector PMI falling short of expectations and manufacturing sector PMI beating them. Service sector PMI is due for release tomorrow which could be the catalyst for a break in the pound.