GBP/USD: Sterling to remain vulnerable while risk-off trading continues – MUFG

The pound has underperformed amidst more risk averse trading conditions resulting in cable closing back below its 200-day moving at just above 1.3700 for the first time in a year. Although MPC members Haskel and Mann have dampened tightening speculation, sterling is set to suffer further downside pressure, Lee Hardman, Currency Analyst at MUFG Bank, reports.

Damp mood weighs on the pound

“During periods of risk aversion the more high beta pound normally underperforms against both the US dollar and euro. The last brief period of risk aversion was in late February/early March in response to concerns over sharply higher US yields saw cable falling from a high of 1.4237 to a low of 1.3779.”

“The pound has been partially undermined by dovish comments yesterday from BoE officials which have helped to dampen building speculation over the likelihood of the BoE tightening policy sooner than expected.”

“MPC members Haskel and Mann stated that the BoE should not tighten policy prematurely. They are concerned that tightening policy prematurely will result in a weaker economic recovery and expressed more concern over headwinds from further COVID-19 disruption and tighter fiscal policy going forward.” 

“Even if the BoE is moving closer to tightening policy, the pound will struggle to advance while the current period of risk off trading continues.”