The pound on Thursday pushed above $1.30 for the first time in nearly 8 months, and analysts say the door looks open to further gains for the British currency.
It took a blowout British April retail sales report the best since January 2016 to propel the currency above that round number for the first time since late September. The pound (GBPUSD) leapt to an intraday high of $1.3048 after failing since late September to surpass $1.30.
Should the pair hold above here today, it could signal significant further upside in the pair in the coming weeks and months, said Craig Erlam, senior market analyst at OANDA, in a note.
Of course, sterling is always going to be vulnerable to Brexit-related news, but should we see a calm few months on this front and the data continue to perform relatively well, then we could see the pair trading back toward $1.35.
The currency took a major leap in mid-April, surging toward $1.28 from $1.25, when U.K. Prime Minister Theresa May unexpectedly called a snap general election to be held on June 8, three years earlier than planned. Analysts said the election could offer more clarity on the Brexit plan out of Westminster.
But the pound then struggled for weeks to pierce through $1.30, in part as the Bank of England has shown willingness to look through a sterling-driven increase in inflation and stand pat on interest rates. Inflation has charged up to 2.7%, above the bank’s 2% target, as the pound’s lower value has made imported products more expensive to purchase.
Higher interest rates tend to make a country’s currency more attractive to investors. The key U.K. rate is at a record low 0.25%.
Sterling is still far down from the roughly $1.50 area from which it fell last June when the U.K. voted to leave the European Union, or Brexit.
Is there scope for further gains, in spite of continued bearishness surrounding the currency? The short answer to that is yes, with $1.3310 the next potential target, wrote Michael Hewson, chief market analyst at CMC Markets UK.
Above the $1.2830 area are a number of indicators that point to a higher move, including a golden cross signal, he said. That occurs when the 50-day moving average moves above the 200-day average.
And while it is not an arbiter of a definitive move, used in conjunction with other signals it adds further weight to a possible long-term change of direction, Hewson said.
Other analysts aren’t as upbeat on what’s ahead for the pound.
Despite the significance of breaking the psychological barrier against the dollar, sterling still faces some obstacles including the U.K.’s rising inflation and the squeeze being increasingly felt on households, wrote Paresh Davdra, CEO of RationalFX.
This week, data showed regular U.K. wages fell 0.2% when adjusted for inflation.
The pound did catch a break this week as the dollar (DXY) suffered under the weight of escalating political worries surrounded Washington. Investors have sold off the buck on growing doubts U.S. President Donald Trump can deliver tax cuts, more fiscal spending and looser regulations on the financial sector.
For the pound, there is certainly scope for upside in the pair, which prior to this was pricing in a relatively dire scenario in the U.K. and quite the opposite across the pond, Erlam said.
Of course, this will also depend on how things develop in the U.S. and whether the Fed follows through on rate-hike plans, he said.