UK data may boost Sterling amid short squeeze – ING

November jobs and December CPI data could provide a modest boost to sterling, potentially extending a short squeeze that has been building since late November. While GBP/USD may lead the move due to dollar weakness, EUR/GBP remains at risk, with major risk-off events potentially curbing sterling’s upside, ING’s FX analyst Chris Turner notes.

GBP/USD set to outperform on Dollar weakness

“We think this week’s UK data set – November jobs data and December CPI – could prove slightly bullish for sterling and extend a short squeeze which has been extending since late November. We had felt that the weak link here would be EUR/GBP, with risks to 0.8600. However, dollar weakness at the start of the week could mean that GBP/USD sees the majority of this move. Above 1.3415/3420 could open up the 1.3450/3460 area.”

“We are cognizant that sterling tends to underperform in major risk-off episodes; clearly, there are many moving parts at play here.”