Calmer times for Sterling. Economists at Société Générale expect GBP/USD to track EUR/GBP and move gradually higher toward 1.30.
EUR/GBP’s underlying trend remains upwards, slowly
“Since the start of November, Sterling has tracked five-year yield differentials, with a narrowing in the UK-German spread of nearly 110 bps in November-January taking EUR/GBP from 0.86 to almost 0.90.”
“Unless yield differentials narrow significantly from here, we may well find that EUR/GBP becomes dull for a while, trading at 0.87-0.92 over the coming months. Against that backdrop, GBP/USD will likely simply track EUR/GBP and make its way slowly back to 1.30.”
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