GBP/USD set to drop below the 1.40 mark later in the year – Rabobank

GBP/USD has today moved in the direction of its February high in the 1.4237 region. Clearly the broad-based weakness of the USD is largely responsible for the move in cable, as Jane Foley, Senior FX Strategist at Rabobank, notes. In addition, expectations surrounding the reopening of the economies will also have an impact in how the pound can perform vs. the USD. 

Sterling underpinned in the near-term

“After a generally strong set of data for Mar/April, the market is expecting the forthcoming round to extend the picture of economic recovery. A key question for GBP is how much of this good news is already in the price. The vaccine trade already lifted the pound significantly in Q1 suggesting that investors may need fresh incentives to persuade them to build fresh long positions.”

“In view of the softness of real yields in the US, the USD looks set to remain on the defensive unless the Fed signals a less dovish tone on policy.” 

“There is speculation in the market that the Fed’s Jackson Hole symposium could provide a backdrop for policy makers to dip their toe into the topic of tapering. This, however, will depend on the path of inflation data and, since it is not scheduled until August, it is likely that the market is coming to terms with the likelihood that USD weakness could extend further in the coming weeks. While this could leave cable well supported near-term, we see scope for another move below 1.40 later in the year.”