Analysts at Citibank point out that widespread distribution of a vaccine, and an agreement on a Brexit deal can support the pound. They forecast GBP/USD at 1.32 in a three-month horizon and at 1.37 in six to twelve months.
“There’s no doubt that GBP is cheap based on traditional PPP, which sits around 15% below its long term average. So arguably, despite the fact that the UK has lagged the G10 complex in terms of economic momentum throughout most of the year, the currency has been reasonably supported by its cheap valuation. Going forward, widespread distribution of a vaccine, and an agreement on a Brexit deal can support GBP. A Global economic recovery in 2021 as a result of a vaccine could see the UK begin to catchup. This also reduces the probability of the MPC moving policy rates into negative Territory.”
“GBPUSD have closed above a good horizontal resistance range at 1.3292-1.331 which comes from a 76.4% retracement level and a November high. This opens up room for an up move to 1.3482-1.3514 (September 2020 and December 2019 high).”
“1.3400 remains near term resistance and a deal announcement could see 1.3500 tested with a further break opening up to 1.3760 and 1.4000 as there remains strong underlying demand for the currency once real money and sovereign type names get the greenlight to allocate capital towards the UK.”