GBP/USD has more room to rise, argues Kit Juckes of SocGen. While there are risks and a bearish position could be taken closer to the general elections, the balance between the US and the UK could work in favor of the pair.
Here is his opinion:
Here is their view, courtesy of eFXnews:
“At the moment the UK rates market prices 1year swap rates at 1.24% in a year’s time. But the market prices 1-year US rates at 1.28%…If the market shifts its pricing in the next few months (either re-pricing Fed rate expectations down, or bringing forward the expected timing of a UK rate hike) GBP/USD can easily get back above 1.60. All the more so if EUR/USD gets stuck in a range and the large (unsustainable?) long dollar position in the speculative FX market is reduced.
This doesn’t alter my long-term view of the dangers to the UK from the most uncertain General Election I can remember, or from a huge current account deficit and a budget deficit that is dangerously big at this point in the economic cycle.
It’s just that I’ve been droning on about GBP/USD downside risks for months and months and I rather wish I had pointed out to clients that there was a strong case for exiting those positions, before real wage growth jumped. I’ll get back to bearish GBP/USD positions another day, perhaps closer to the election, perhaps when GBP/USD is back at 1.60….”
Kit Juckes – Societe Generale
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