The Pound Sterling (GBP) started the year on a firm note, outperforming most of its major currency peers. Economists at Scotiabank analyze GBP outlook.

GBP’s early year outperformance moderates

Positive UK data, suggesting some surprising resiliency in the economy prompted a significant reduction in BoE rate cut bets while strengthening global stocks gave the quasi high-beta GBP a pro-risk lift. 

Cable gains were capped a little above 1.2800 while solid support developed on dips to 1.2600 as speculative and hedge fund traders boosted bullish positioning. 

Short-term trends turned more negative in early February as GBP/USD weakened below 1.2600 but we still anticipate moderate gains for the GBP (mainly in H2) this year as global rates ease and risk appetite picks up.