The pound is developing immunity to bad news

Over the past 2 weeks, the British currency has grown against the dollar by more than 2 percent, while ignoring a number of disappointing macroeconomic indicators. The pound was strengthened even in those days when Britain published reports that showed weak rates of growth in activity in the services sector and a drop in property prices. According to the index of economic surprises, calculated by Citi, makrostatistika Britain for many months is less than expectations. In the meantime, there has been no tangible progress in the Brexit negotiations between Britain and the EU. And yet, despite this, in the current year the pound grew by about 6%, breaking through Tuesday the $ 1.30 mark. “Initially, the bar on sterling was set so low that it would require truly catastrophic news for its significant drop,” said B√ľnneth Bennett, chief foreign exchange strategist at Banco Santander SA. “Aggressive sales of the currency, which took place from the end of October 2015, indicate that the market has already laid in prices much weaker economic indicators than those that we actually see.”
Now, investors’ attention has shifted to the ECB’s forthcoming monetary policy decision, dovish comments from the Fed’s representatives and the review of the bill on the implementation of the EU exit that starts in the British parliament. Under these conditions, traders are now reviewing their position on the pound, commented Jane Foley, chief currency strategist at Rabobank International. “The market holds a very short position on sterling, which means that it will rather react to good news,” she explains. “The second reading of the bill, providing for the abolition of EU legislation, will attract close attention of the players, and the pound may strengthen slightly if during the discussion the bill does not meet with resistance from the Tories who favored maintaining Britain’s membership in the European Union.”
In addition, the opposition Labor Party’s attitude toward the replacement of European laws and norms and their transformation into British laws also increased the expectations of traders regarding the possibility of a more constructive Brexit, adds the strategist of the Canadian Imperial Bank of Commerce, Jeremy Stretch. As demonstrated by the dynamics in the options markets, over the past two weeks, investors have reduced their bearish position on the pound. However, soon their nerves will have to be seriously tested for strength, as the October deadline is inexorably approaching, before which Britain needs to make progress in the process of negotiations with the EU and get an opportunity to go on to discuss future trade relations. “This is not some radical change – just another phase of growth, which will eventually be replaced by sales to the rally,” says Stretch

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