Sterling Fundamental Forecast: GBP Slides Before PM ‘Party’ Report Next Week

January 23, 2022

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STERLING WEEKLY FORECAST: NEUTRAL, DUE TO UNCERTAIN POLITICAL OUTCOME

Next week will prove decisive for PM Johnson and the Pound
Sterling unfazed by weak retail sales data due to bumper November shopping
Sterling remains net short

Sterling Fundamental Forecast: Boris Johnson’s fate as Prime Minister will become a lot clearer next week as Sue Gray’s report into Downing street parties during lockdown becomes due. The exact date is not known but it is said to be due any day from Monday with some sources even suggesting from as early as Friday.

A damning report could result in Johnson’s resignation or a vote of no confidence brought by his own Conservative party.

Read our guide explaining what it takes to institute a vote of no confidence

Thus far, UK press reports suggest that 12 of the 54 required letters to the 1922 committee – in order to initiate a vote of no confidence – have been received and it is widely believed that the other Tory MPs await Sue Gray’s report before deciding whether to send a letter or not.

Johnson’s ratings as a result of the ‘Partygate’ scandal has dropped down to 28%, the lowest on record. Additionally, recent polls suggest that the balance of power as a result of Johnson’s leadership failures and lockdown parties has the Labour party ahead of the Conservatives by some margin.

WEAK RETAIL SALES DATA AND HIGH IMPACT EVENTS IN THE WEEK AHEAD

Retail sales data for December printed a hugely disappointing figure of -0.9% vs a forecasted figure of 3.4%. There was a muted reaction to the miss, most likely due to a bumper reading in November as a result of Black Friday and due to then Omicron concerns throughout December.

Sterling Fundamental Forecast: In the coming week we have Markit/CIPS Services and Manufacturing data (Flash) for January but more importantly, the FOMC and Bank of Canada rate decisions. This is the first meeting of the year with the Fed almost certain to leave rates unchanged while the BoC carries an 85% chance of a hike according to implied probabilities in overnight interest swaps. Lastly, to round up the week, US PCE data is due on Friday.

POUND STERLING POSITIONING AND DAILY CHART

A continued reduction in Sterling long positioning combined with fewer longs has resulted in less net-short positioning in Sterling, according to data up until 11 Jan. GBP/USD may continue lower if such net-short positioning persists. New data expected later today.

Speculative ‘non-commercial’ positioning via the CoT Report – CBOE