GBP/USD: A substantial drop to the 1.3150-75 zone appears highly likely – Westpac

GBP/USD has extended its weekly slide toward 1.3300. “Finely balanced risks” into MPC’s December meeting may be altered by strong business surveys, but in the interim GBP/USD remains at risk of sliding towards 1.3150-75, in the view of economists at Westpac.

UK Business is doing fine

“This week’s CBI (Confederation of British Industry) Nov Trends survey provided an upside surprise in terms of business activity and persistently strong optimism. Critical for the BoE Dec meeting will be whether consumer confidence also holds up and whether BoE Agents’ Report shows similar output and optimism. Such profiles would normally swing the current ‘finely balanced’ discussions towards a hike. However, covid cases and any renewed restrictions will also be critical.”

“EU/UK tensions are a lingering source of uncertainty for GBP but are less acute as discussions continue.” 

“USD strength is currently dominant and GBP seems likely to struggle to regain levels above 1.3350.”

“A retracement (basis Mar 2020 low) around 1.3150-75 appears to be a likely target on further USD strength.”