GBP/USD managed to recover thanks to some USD weakness following the FOMC decision, but as the greenback begins improving, the pound looks relatively vulnerable. Here are three reasons to stay bearish on the pound according to the team at BNP Paribas:
Here is their view, courtesy of eFXnews:
We expect the GBP to continue weakening for three main reasons.
First, stronger than expected UK data over the past month and a squeeze of short GBP positions have, according to BNP Paribas STEER, driven the GBP above its-its fair value implied by rates and equity markets – short-term fair value currently stands at 1.2890.
Second, the GBP remains vulnerable to political uncertainty which we think is likely to stay high near term.
Finally, our economists continue to forecast a 15bp rate cut at the Bank of England’s November meeting – considerably more than the market is pricing in.
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Lines to watch are 1.2950, 1.2840 and 1.2790 on the downside. Looking up, note 1.3065, 1.3250 and 1.3360.