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Economists at Westpac note that the US dollar trend has turned lower as hope over the recovery grows and forecast the GBP/USD pair at 1.27 by year-end. Nonetheless, Brexit issues could make the cable to trade around the 1.25 level.

Key quotes

“It seems a decisive turn in the US dollar trend has been seen in the past month. The move is the result of optimism amongst investors over the global recovery from COVID-19, and consequently a greater willingness to take on risk. The actions of authorities to contain the virus and the provision of extraordinary stimulus by the FOMC and other central banks across the globe has been pivotal. Given the strength of the sentiment behind it, and in the absence of a clear second COVID-19 wave in key developed nations such as the US, it seems likely that this new US dollar downtrend will persist for the remainder of this year, and well into next.”

“After a period of stability to year-end, we look for sterling to lift from USD 1.27 at December 2020 to only USD 1.30 December 2021.”

“There is a very real risk that Brexit delays could result in sterling spending more time in the mid-1.20’s against the US dollar compared to our USD 1.27 and USD 1.30 end-2020/2021 baseline forecasts.”