Cautious trading ahead of key central banks meetings, Pound outperformer

Range bound currency trading controlled the Asian session today as markets preferred to remain on the sidelines ahead of FOMC and BoJ meetings on Wednesday and Thursday. Currencies continued to take their cues from equities as no tier one economic data was released, this was reflected in the Yen which appreciated against the US dollar on the back of second day selloff in Asian stocks. In the meantime, speculation of fresh stimulus from BoJ will likely provide a limit to JPY strength.

Sterling continued to be the star of the show holding close to a two and half month’s high against the US dollar hovering around 1.45. The strength in the currency is not attributed to improvement in economic data as most recent numbers indicated that the UK economy is facing downside risks with the GDP results later this week to provide further details. In fact, big thanks go to President Barak Obama who voiced his support for a ‘Bremain’.

The Pound has been under pressure since late 2015. From November last year until February 2016 GBPUSD lost more than 1,600 pip or 10% on the back of voices calling for UK to exit the EU. Now with less than two months before the 23 June referendum, a direct intervention came from Mr. Obama the who said over the weekend that Britain might have to wait a decade for a free trade deal with the United States if it votes to leave the EU. Recent polls also indicated a strong shift towards the “In” campaign, with ICM, ORB, Ipsos Mori, and ComRes all showing votes are coming in favor of Britain staying in the EU.

Is GBPUSD 1.5 a possible target?

When GBP moves in a direction it is not easy to stop it. The cable had been trading on a discount to major currencies mainly due to the high probability of the UK leaving the EU and the significant risks not just towards the UK’s economy, but also to the EU and to some extent the global economy. If global and financial leaders continued to support the ‘Bremain’ camp, and the results are mirrored in the voting polls, this would provide further support for GBPUSD bulls and a breakout of 1.4668 would lead to test the 1.5 psychological level. However, FOMC meeting on Wednesday and UK GDP on Thursday are key events to keep an eye on.