GBP Outlook: Short-Term Gains Maintained

GBP: Holding onto gains, short term

The Bank of England's trade-weighted sterling index continues to trade near the highs of the year, no doubt propped up by high short-term interest rates. 3m GBP implied yields of 5.40% make it very expensive to FX hedge positions on UK bond markets, for example.

It may well be that this sterling strength endures to the next set of releases on UK wages and CPI (September 12th and 20th respectively), with more mileage to be had against the euro than the dollar given headwinds to the external investment environment.

For this week, the UK calendar is light until Wednesday's release of PMI data. EUR/GBP can stay offered in a 0.8500-0.8550 range, while GBP/USD remains trapped well inside last week's narrow range of 1.2615-1.2785.