Market Analysis

Could The Pound Astound?

Japan’s MUFG, writing Thursday, notes that a “forced re-assessment of European political risk, [a] more hawkish Fed and some progress on US tax reform have all combined to provide a bullish trigger for the US dollar” but remains “sceptical over the sustainability of the rebound.” With that scepticism in mind, the Japanese bank’s eye has fallen on sterling. MUFG is taking a positive view on the outlook for the pound (GBPUSD, EURGBP) predicated on a number of factors. Firstly the Japanese firm has “been encouraged by further evidence that the UK economy is proving more resilient than feared.”

Secondly it feels that against that economic background the Bank of England “should follow through on their recent hawkish signal to begin raising rates in the coming months.” With a more positive tone also emanating from this week’s Brexit negotiations and given that MUFG believes that “so far the market does not appear to have materially reduced the Brexit risk priced into the pound,” the Japanese bank can see the chance of a bullish scenario developing for sterling in the last four months of 2017. Traders will have their own views but MUFG “would not be surprised to see cable [GBPUSD] back above the 1.4000-level by year-end and EUR/GBP closer to the low 0.8000s.”

Written by Neal Kimberley, External Currency Analyst.