British Pound Sterling

The British pound is just 0.1 pct higher on a day-by-day basis against the US dollar (Currency:USD) in early afternoon trade in London.

GBP/USD broke through recent highs of 1.5768 and 1.5776 last week, aided by the more dovish than expected FOMC minutes which indicated that the Fed had moved closer to pulling the trigger on QE3," notes Melinda Burgess, FX Trading Strategist at RBS.

That said, the minutes are from the 1-August meeting and therefore do not include the most recent positive July employment and retail sales reports.

Hence, all eyes will be on Bernanke’s speech at the Jackson Hole Symposium this week to see if he gives any clear signal around more QE.

"In our view, given the upcoming August payroll data on 7 September and the ECB meeting on 6 September, it is more likely that Bernanke will hold off pre-announcing this week. Given expectations leading into this speech, this may lead to a firmer USD and a more negative wider risk environment ahead of the 13 September FOMC meeting," says Burgess.

The UK/US 5yr swap spread has moved back in favour of the USD over the past week and the RBS short term fair value model suggests that GBP/USD looks overvalued at current levels and should be closer to 1.5688.

"However, if the Fed does announce more action in September, there is scope for some further upside in GBP/USD," says Burgess.

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