The British pound recently rose to its highest level in more than five years, as global market participants responded to speculation surrounding the Bank of England and its use of policy.
The Sterling reached $1.7063 on June 19, which was the highest level for the reserve currency since October 2008, according to Bloomberg. However, several strategists predicted further gains, estimating that the currency pair will move upward in the near future.
On June 19, Commerzbank increased its year-end projection to $1.72, noting recent guidance from Bank of England Governor Mark Carney that the financial institution could hike rates sooner than many expect, the media outlet reported. Previously, the Frankfurt-based financial services firm maintained a year-end prediction of $1.66. Wells Fargo made a similar move, boosting its one-year forecast to $1.73 from the previous $1.69. While many are optimistic that the Sterling will move higher, at least one market expert believes it has become overvalued, according to Bloomberg News.
“The market could have taken sterling too far here,” John Hardy, who works for Saxo Bank A/S in Copenhagen as head of foreign-exchange strategy, told the media outlet. “There could be a washout on long positions and rate spreads have done nothing since the Carney speech. I’m wondering if we go back higher on the dollar.”
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Market experts will likely scrutinize the BOE to see exactly when it decides to increase its benchmark borrowing costs. Investor expectations of when the central bank will hike interest rates have changed since Carney’s speech on June 12, according to Sonia contracts reported on by Bloomberg News.
Binary options traders might be able to lock in a profit by betting on the future direction of the GBP/USD. They could potentially make better-informed trades by being aware of the what expectations investors have for the currency pair.