The British pound continued to rally from Friday, following some relatively hawkish comments from BoE MPC member Gertjan Vlieghe. Among other optimistic remarks, the policymaker said that the appropriate time for a rate hike might be as early as in the coming months, something that pushed the implied probability for a hike by December to 78%.
Today, we will hear from BoE Governor Mark Carney, who will speak at the IMF. Should he reaffirm that a hike in the coming months is likely, sterling could gain further. Given the heightened speculation for a hike, we maintain the view that the short-term outlook of GBP remains positive.
Looking further ahead, the key risk to the continuation of the GBP rally are politics, we think. The latest focus on monetary policy developments seems to have shifted market attention away from the continued delays and the lack of progress in the Brexit negotiations.
The GBPUSD is testing the long-term trend line from the 2014 high and currently trading around 1.3556.
Key support for the week ahead comes in at 1.3445. This is the September 2016 high and is an area that also capped several advances in June and July of last year following the post-Brexit selloff.