Further GBP/USD upside unlikely - ING

Ross J Burland FXStreet

Viraj Patel, Foreign Exchange Strategist at ING Wholesale Banking, in the case of Sterling, explained that with the UK OIS curve pricing in around 35bp-worth of BoE tightening by end-2018, any further BoE-driven GBP upside would seem unlikely.

Key Quotes:

"Our short-term GBP/USD financial model suggests that the pound is also no longer trading with any political risk premium – the 1.2950-1.3000 area looks “fair” after the recent hawkish BoE re-pricing. All of this suggests the risks to GBP are now much more two-way; it will only take a couple of weak UK data points for the current hawkish exuberance to fade and GBP to move back lower.

One could, however, argue that FX markets are to some extent "front-running" hawkish central bank rhetoric (which in itself is most policymakers' worst nightmare). As we saw in the EUR today with the early follow-through buying after Draghi’s remarks yesterday, there are short-term risks that the GBP/USD rally could extend to technical resistance in the 1.3050/3100 area. That may mark the top for the time being; if not - and we see a daily/weekly close above 1.3100 - a more significant re-assessment of the BoE hiking cycle may be underway and 1.35/38 cannot be ruled out.

UK data to watch out for: The next UK labour market report - and the next update on domestic wage dynamics - will be out on 12 July. This - along with CPI (18 July) and the 2Q advanced GDP release (26 July) will be crucial data points to watch out for ahead of the August MPC meeting."

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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