The latest IMM data cover the week from 10 to 17 February 2015.
IMM positioning data released Friday show that speculators reduced their bearish GBP bets for the fourth consecutive week, which sent non-commercial GBP positioning from the 17th to the 28th percentile in a historical perspective. We have for quite some time argued that the GBP potential is underestimated in financial markets and that the bearish positioning in itself suggests a high sensitivity to the upside when Bank of England is re-priced. Indeed, the implicit expectation for the first rate hike is currently set for March 2016, which we believe is far too dovish. Instead, we look for a hike in August this year, as 1) the unemployment rate is now close to the long-term average, 2) wage growth has started to rise, 3) the decline in inflation is temporary (i.e. base effects will remove the oil price collapse), 4) the housing market looks solid and 5) activity indicators point to continued growth of 2.5-3.0%. On a 3M horizon, however, the UK election is likely to cap the full GBP upside potential. We target EUR/GBP at 0.74 in 1M and 3M and 0.72 in 6M.
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