Sterling remains steady, although analysts view the move as a short squeeze rather than a fundamental reassessment of risks in the UK. While GBP/USD may rise until the end of the year, the BoE’s easing monetary policy should keep EUR/GBP supported around 0.88, notes Chris Turner, FX analyst at ING.
GBP/USD targets 1.34 as the dollar declines
“Sterling continues to perform well. We suspect this represents a significant reassessment of UK sovereign risk, although we note that the 10-year UK government bond swap spread has held to its modest tightening and is now at 48 basis points. This reached 58 basis points in late September. We would prefer to see the current sterling rally as a short squeeze.”
“We are a little bullish on the dollar and have a year-end GBP/USD target of 1.34. But we would also like some weak performance for GBP/EUR as the Bank of England resumes its easing cycle in December. This means EUR/GBP does not spend much time at the lows of 0.87 and should be back near 0.88 or higher by the end of the year.”
