GBP/USD: Sterling to stay firm on course to the 1.4377 April 2018 high – Mizuho

The pound strengthened in May. It moved firmly on the whole against the dollar. However, it only rose slightly against the euro. In the view of economists at Mizuho Bank, GBP will continue rising in June.

Pound’s recent strength is due in large part to dollar bearishness

“The UK’s successful Covid-19 vaccine roll-out has probably contributed to sterling’s firmness these past few months. However, investors were unfazed by concerns about the spread of an Indian variant across northern England mid-May. This suggests the currency markets are not actually focused much on the emergence from the pandemic.”

“Rather than ending soon, it seems more likely that the pound’s firmness will continue for a few more weeks at least. The pound/yen pair has already hit a 39-month high, but with the pound/dollar pair also heading towards recent highs (February 24’s $1.4240 or April 2018’s $1.4377) as of May 28, it seems sterling could also be pushed up by attempts on these levels.”

“The pound is expected to continue rising overall, but there seem to be several factors that could easily see sterling adjusted lower. This could occur if a dollar rally prevents the pound/dollar pair from breaking above recent highs (the aforementioned $1.4377 level), for example.”

“Other potential bearish factors include the spread of the Indian variant of covid (with the scrapping of restrictions on movement subsequently pushed back from June 21), uncertainty about the UK political situation, discord between the UK and France over fishing rights, and the possibility that the UK might be given the cold shoulder when the EU introduces its vaccine passport in the near future.”