1.45 is a very specific target for GBP/USD. However, it’s a significant target as that’s where the Pound was before the Brexit referendum. Now the Brexit deal is done, what will push it back to that level again?
It is clear that the damage that the Coronavirus has done continues to weigh on the pound. With lockdowns in the UK holding through Christmas and New Years, and continuing into the new year, optimism in the UK economy is at an all-time low.
However, with daily Coronavirus cases dropping 25% from the last week, there is some signs of the UK pulling out of their current situation. With that said, hospital beds are still near the brink of overcapacity, alongside deaths continuing to record over a thousand deaths a day.
Another factor weighing on the cable is the forward-looking guidance the Bank of England gives on interest rates. Specifically, whether they will bring the rate into negative territory.
However, after Governor Bailey’s speech earlier this week, the market has pushed back on hopes that the current interest rate of 0.1% going into negative territory. However, analysts predict a rate cut from 0.1% as soon as next month. Goldman Sachs strategists predict that there could be a rate move to 0% soon, placing those odds at 4 to 1.
Valentin Marinov, head of Group-of-10 FX research and strategy at Credit Agricole SA stated that “The pound is regaining ground as rates markets are pairing back rate cut bets ahead of the February policy meeting..”. However, he also added that “any rebounds in the GBP represent a selling opportunity at current levels.”
The catalyst for the Pound is relatively clear: A dire Coronavirus situation getting much, much better alongside interest rates holding steady.
What are your predictions for the pound?