Having soared through the 1.40 level in the latter half of last month the GBP/USD pair has suffered a setback. Jane Foley, Senior FX Strategist at Rabobank, expects the cable to take a breather and trade below the 1.42 mark through the spring.
“We would expect the pound to become more sensitive to UK data in the coming months with the build-up in GBP long positions suggesting scope for corrections on bad news.”
“The market appears to be sensing that the Fed may not toe the line with its current guidance regarding the timing of the first Fed rate hike. The reflation theme is heavily tied to the US and the huge Biden stimulus package, which Democrats hope to enact by March 14. This backdrop could lead to a more resilient tone in the USD than the market has been expecting. This would imply that further upside potential for GBP/USD in the coming months could prove to be more difficult to achieve.”
“We expect the Fed to repeat its dovish outlook which suggests the potential for choppy conditions in the dollar crosses including cable.”
“We retain our view that cable may hold below 1.42 through the spring.”
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