International Monetary Fund is warning that GBP is overvalued and is near the tipping point. It comes after the IMF weighed into the debate on Monday, saying in its annual assessment of the U.K. economy that the currency is 5-10 percent overvalued. The Bank of England declined to comment on the IMF’s views.
As a GBP/USD trader you should keep a close watch on the fundamentals of UK economy and what the BOE is going to do about it. BOE has been concerned that a strong GBP can choke off the UK economic recovery. Last month, it left it’s interest rate and asset purchase targets unchanged. Even though BOE Governor last month had indicated that he might increase the interest rates sooner than expected. GBP/USD jumped up more than 200 pips on that statement. But the very next day when he came under questioning in the House of Commons, he backtracked and said interest rate change will be data driven.
Currency traders looking to bolster their short positions on sterling against the dollar will also take note of comments from brokerage firm Monex Europe’s Eimear Daly, who was one strategist that wasn’t caught out by the pound’s move above $1.70.
She now predicts that an important week for the dollar – which includes U.S. growth data, jobs data and a Federal Reserve decision – leaves the door open to some possible downside.
“Markets have an inbred belief that the dollar’s true value is higher and the trigger is the Fed moving towards hiking. As such they are piling into monetary policy divergence plays early, and the dollar is heading into this week’s trading with a high degree of disappointment risk,” she said in a research note on Tuesday.
Today is the NFP Report release day. Analysts are expecting jobs data figures to be better than expected. If this happens, it will make USD strong and GBP/USD is expected to fall more. So keep your fingers closed and don’t open any trade before the NFP Report release. The best time to open a GBP/USD trade is next week most probably Monday or Tuesday.