GBP/USD: Economic expectations to support the pound in Q2 – CIBC

Analysts at CIBC argue the British pound should hold versus the recent gain ground versus the US dollar. They see the GBP/USD pair trading at 1.38 by the end of the second quarter and at 1.41 by the end of the third. 

Key Quotes: 

“As we move into Q2, we have seen the market pare aggregate GBP holdings, albeit after reaching one year highs. The correction leaves the market somewhat better positioned into April. In this context, we note that the month has witnessed strong across the board Sterling gains over more than a decade. Corporate repatriation flows, ahead of dividend payments in May, provide a positive GBP inflow, albeit dividend distribution results in something of a mirror image next month.”

“Beyond corporate flow dynamics, we view the correction in Sterling positions as providing scope for holdings to be rebuilt. Unlike the rest of the European continent, the UK is witnessing a downslope of Covid cases. Moreover, with almost 60% of the UK adult population having received one dose of the vaccine, prospects for a consumer led rebound are growing.”

“Forward looking survey indicators, services PMI, GfK consumer confidence or the CBI distributive trades survey all point towards strong activity gains. With consumer activity likely to exceed what is generally anticipated, Sterling should hold its ground against the USD over Q2.”