The recent decline of the GBP/USD pair was driven mostly by US Dollar strength rather than the decline in Bank of England rate hike expectations, noted analysts at Rabobank. They see scope for the pair to slide toward 1.23 on a three month perspective.
While GBP was impacted last week by the decline in rate hike expectations, we would argue that it is USD strength which has been the real force behind the softer tone in cable in recent weeks. The USD is the best performing currency on a 1-month view on the back of the resilience of the US economy and the suspicion that the Fed will have to maintain higher rates for longer.
Slower growth in China and in Europe is bad news for risk appetite. This too is USD supportive. We expect the USD to remain well positioned on a 3-to-6-month view until the market begins to look ahead to Fed rate hikes. This suggests that cable is likely to struggle to regain recovery lost ground. We forecast cable at 1.23 in 3 month and at 1.24 in 6 months.
Source: FX STREET