Societe Generale: Sterling sentiment swings ‘from despair to euphoria’

Euro coinsPhoto by Leslie Shaffer

As U.K.-EU trade talks begin, sentiment on the pound sterling has “lurched from despair to euphoria,” Kit Juckes, chief foreign-exchange strategist at Societe Generale, said in a note on Monday.

“The market already attached a very high probability to a May rate hike and at some point will probably become convinced that rates will be above 1 percent in early 2019. All of which supports the pound,” he said.

He pointed to U.K. data due this week, including labour data on Tuesday, which he said was forecast to show a steady 4.32 percent unemployment rate and a slight wage-growth pickup to 2.7 percent ex-bonuses. He also noted consumer price index an producer price index data were due on Wednesday, which he expected to show CPI rose 2.5 percent on-year, while on Thursday, retail sales data were due.

But while Juckes said he was sticking with his forecast that the euro/pound pair would reach 0.84, he didn’t expect it to stay there.

“Two caveats should remain in the back of your minds. Firstly, the U.K. economy is still slowing and still underperforming its peers,” he said. “Secondly, as CFTCF data show, there has been a huge turnaround in sentiment and positioning. Sterling was, and still is, cheap on a historical basis and the market’s net short was huge. This move is only really an unwinding of that position as sentiment lurches.”

The pound was fetching US$1.4322 at 10:51 P.M. SGT on Monday, a tad off a high of US$1.4338 earlier in the session, the highest since January 25, which was itself the highest since the Brexit referendum in June of 2016, according to DZH data.

The euro was fetching 0.8641 pound at 10:54 P.M. SGT on Monday.