GBP/USD: Easing of restrictions and potential BoE hike to trigger a lift to 1.3625 – Westpac

Uncertainty around Prime Minister Boris Johnson is unlikely to persist. Furthermore, solid activity data and inflationary pressures as Omicron restrictions ease should lift GBP towards recent highs, in the opinion of economists at Westpac.

GBP/USD may be vulnerable to another flush to 1.3400

“The easing of covid restrictions and moves away from working from home should lift economic activityy. Nov employment and production were stronger than anticipated and inflation data was notably higher. Dec’s Omicron impacted retail sales were surprisingly weak, but recent survey data suggest that demand has remained firm and maintain potential for another BoE hike.” 

“PM Johnson’s position is increasingly precarious. Discontent over his leadership still needs 15% (54 MPs) of Tory MPs to lodge their lack of confidence to trigger a leadership challenge. That may create concerns over leadership, but it would also end the current uncertainty and so the impact on GBP might perversely be positive.”

“GBP/USD may be vulnerable to another flush to 1.3400 but easing of restrictions and a potential BoE hike could trigger a lift to 1.3625 if not a retest of 1.3750.”