Currency traders haven’t been this upbeat on the pound in more than three years. The cost of owning one-month call options on sterling relative to puts reached six basis points, the steepest since February 2014, as the Bank of England said the market is underpricing the prospect of rate increases. The premium on calls shows the market’s conviction that the currency’s more than 3 percent rally against the dollar this month has legs.
The key question on investors’ minds at the moment is: where does the pound go from here? To some extent, the currency’s fortunes against the dollar will be influenced by what the Federal Reserve does, and in this context next week’s FOMC meeting will take on added significance. Witness also that stronger-than-estimated consumer-price inflation data out of the U.S. on Thursday failed to damp bullish sentiment for the pound. Should the Fed stay largely in line with market expectations, the pound could trade above $1.3429, the half-way point of its drop since Brexit day.
Regardless of the outlook for the U.S. economy, speculation that the Bank of England will move sooner rather than later on rates is likely to support the pound. The market now expects the central bank to raise the benchmark bank rate in February and has assigned about a 50 percent chance of a move as soon as in November.
Source: Bloomberg Pro Terminal
Jr Trader Petar Milanov
Bloomberg: Pound Sentiment Is Now the Most Bullish in More Than Three Years
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.