GBP/USD: Medium-term political risks may still be around the corner in the UK – Rabobank

The pound is among the top performers on Monday, following last week’s elections. Analysts at Rabobank warn that medium-term political risk may still be around the corner in the United Kingdom. They consider GBP/USD could slide under 1.39 in the coming months. 

Key Quotes: 

“Insofar as the GBP hasn’t has paid much attention to the positive anecdotal evidence following the unwinding of various covid related restrictions in the UK over the past month, post-election relief may have been accentuated by the more optimistic outlook on the economy. That said, we would warn that medium-term political risks may still be around the corner in the UK.”

“In the near-term the pound is likely to focus on this week’s UK events and data releases. The calendar includes the release of UK Q1 GDP and March industrial production. As well as a speech later in the week by BoE Governor Andrew Bailey, the Queens speech will ensure the focus doesn’t stray too far from politics - though the legislation referred to in the latter will be mostly of domestic interest.”

“In view of the good news both on the UK’s vaccination programme and on the fall in the number of Covid infections, the news can be expected to further lift consumer confidence.”

“Given that the EUR has also been lifted by vaccine related optimism we continue to expect only a slow drift lower for EUR/GBP towards 0.84 on a 6 month view. We see risks of dips in cable back to the 1.39 level in the coming months on further bouts of optimism regarding US reflation.”