The odds are stacking up against sterling. Long positioning pound is crowded, sitting near its highest level in five years, based on Citigroup's GBP pain index. News that Theresa May is under pressure from her own party to take a harder approach to Brexit negotiations signal more volatility. And if that wasn't enough, U.K. domestic data continue to disappoint.The squeeze on households is plain to see in tepid retail sales figures, which have averaged about 1.9% since real wage contraction began about a year ago, compared with 4.7% in the preceding year. That's a huge deterioration as household spending power diminishes.
In that period of buoyant retail sales growth, inflation adjusted earnings averaged +1.6%. Even if the BOE is right and nominal wages do start to pick up, it'll take a long time before consumers feel as rich as they did before (and just after) the Brexit referendum. This will probably keep a lid on MPC rate hikes, and will cap GBP upside.
Source: Bloomberg Pro Terminal
Trader Bozhidar Arabadzhiev
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