GBP/USD: Asymmetrical Downside Risks For The GBP; Where To Target? – UOB

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What is the outlook for GBP/USD by year-end?

Here is their view, courtesy of eFXdata:

UOB Research maintains a bearish bias on GBP and targets cable at 1.25 by year-end.

“With about two months to go till the conclusion of the Brexit transition at the end of this year, time is running out for a trade deal to be reached between the UK and the European Union (EU). While talks are still ongoing, both sides are not compromising on their red lines on level playing field and fisheries. Interestingly, the FX markets still appear hopeful for an eleventh-hour deal,” UOB notes.

At this juncture, we are of the view that the risk for GBP/USD is asymmetrical and tilted to the downside. Even with a last-minute trade deal, further gains may be limited given that the UK economy is still stricken by the pandemic and the prospects of negative rates would inevitably weigh on the GBP. On the downside, there is also scope for further shorts in the GBP/USD as net speculative short-positioning is only a fraction (US$162m now vs US$7.8b in Aug 2019) of what was reached last summer when pricing for a “no-deal” Brexit was most intense. So, we reiterate our defensive view on GBP/USD in the immediate quarter and expect the currency pair at 1.25 at end-4Q20,” UOB adds.

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Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.