Analysts from Lloyds Bank take note of several fundamental factors affecting the pound in the market and consider that GBP/USD could have formed a base and expect a rebound.
Key Quotes:
“Changes to monetary policy expectations have been a key factor keeping GBP/USD on the back foot. According to forward money market rates, there is a 30% chance of a 25bp cut to the UK base rate this year, while the first 25bp hike is not fully priced-in until Q4 2019. In recent testimony to the Treasury Select Committee, Governor Carney’s comments carried a more dovish tone, with further policy easing not ruled out. In contrast, a number of other MPC members suggested that rates markets may have gone too far in overly discounting the possibility of a hike.”
“The impending EU referendum has also weighed on GBP/USD. There is now certainty around the timing – the official date for the vote is 23rd June – however, polls suggest the outcome is in the balance.”
“The UK growth and inflation profiles remain subdued, but given the magnitude and velocity of the decline in GBP since November, we feel that GBP/USD has now formed a base. Beyond the uncertainty in the coming quarters, the pair should rally back toward fair value of 1.47 by end-2016.”
(Market News Provided by FXstreet)