Will GBP be able to continue to outperform?

Less bad news than true positive news is being reflected in the strength of the British pound. Analysts note that the Bank of England will be heavily reliant on UK data (including employment and inflation) the following week.

Although the pound has done well this year, recent data may have had an impact on short-term performance. With EUR/GBP creeping higher, the pound is the third poorest performing G10 currency this week. The figures from yesterday appear to be weighing a little bit on GBP presently. This week, the EUR/GBP has increased by 0.7%, the majority of which has occurred since Thursday.

Technically significant, the break in the GBP/USD pair above the 1.2500 level that has coincided with the break higher in the EUR/USD pair is likely to lead to further gains in the US dollar, especially given the lack of conviction behind the move that is apparent in the IMM positioning data.

A weak set of data next week that changes expectations on a BoE rate hike on 11th May could well undermine GBP performance but that is more likely to be evident versus EUR than against the rest of G10 given many central banks have already moved to a pause and the curve in the US points to aggressive cuts by year-end.