GBP/USD: Stable outlook of the Pound, BoE on hold - CIBC

Analysts at CIBC forecast the GBP/USD pair at 1.28 at Q4 and at 1.38 at Q2 2020. According to them, the outlook for the Pound outlook remains stable and the Bank of England will remain on hold until the “Brexit fog clears”. 

Key Quotes: 

“With the favoured leadership candidate Boris Johnson reportedly happy to countenance a no deal outcome, even if it’s not his preferred choice, its little wonder that markets have been forced to re-price hard exit risks; as a consequence Sterling shorts have been aggressively rebuilt to near five month highs. We continue to believe such probabilities remain modest as Parliamentarians are likely to push back against such a scenario.”

“Expect any attempt to facilitate a no deal exit to be stymied by fears of a confidence vote. Such circumstances would risk the new PM facing the shortest tenure since 1827. While the threat of an early election cannot be totally discounted the risks of a further delay remain real. However, under such circumstances, expect macro inertia to persist and Sterling performance to remain challenged.”

“Some may argue that the BoE could utilize another extension to push for a hike to offset rising inflation. For now we would expect any hawkish tendencies to remain a BoE minority view until the Brexit mist clears.”