GBP/USD: Downside risks for the pound on domestic macro factors – MUFG

Analysts at MUFG Bank, see the GBP/USD with a bearish bias. They offer a trade idea of shorting the pair at 1.3080 with a target at 1.2800 and a stop loss at 1.3200. 

Key Quotes:

“We see building downside risks for the pound on domestic macro factors with the markets likely to price an increasing risk of BoE monetary easing going forward. With the broader sentiment on the US dollar likely to remain favourable we see scope for cable breaking below the 1.3000 level soon.”

“The rhetoric from BoE MPC members this week provides the catalyst for increased market pricing for a cut. Weak data next week, albeit for November prior to the election, will still add to speculation of easing potentially as soon as the meeting at the end of this month. Our current view is a cut at the May meeting, but risks of a January cut could build.”

“Technically, GBP/USD also looks poor with numerous breaches above the 1.3200 level failing quickly. The political rhetoric on EU-UK trade negotiations also point to a difficult time from the very start of negotiations later this quarter. Market participants will increasingly lose faith in the view of a bounce-back in UK domestic demand that will force the BoE to ease, probably not in January but by May.”