GBP: Risks are more making and less breaking - ING

According to Viraj Patel, Foreign Exchange Strategist at ING, suggests that they suspect a frenetic week could be in store for GBP markets as Brexit and Bank of England policy risks clash head-on.

Key Quotes

“If all the cards were to fall perfectly into place for GBP next week - that is the trifecta of an agreed Brexit transition deal, a status quo hawkish Bank of England policy message and constructive UK wage inflation data - we would expect to see a bullish breakout in GBP (especially against a weak USD), and would not rule out a sharp move up towards the year-to-date highs around 1.4250-1.4300 (+2.0% approx).”

“Yet, while it may be tempting to paint next week as a make-or-break moment for GBP - it may be one that is more of an 'emotional' (and not so much an actual) rollercoaster for the currency. In the absence of a complete deadlock in Brexit negotiations, which we assign a trivial risk to, then look for the pound to exhibit the resilience that it has shown under a new Brexit trading environment in 2018 (see GBP: Bad Brexit vibes return... but this time may be different).”

“With BoE policy tightening, a resilient UK economy and a weak US dollar amid the White House chaos all acting as a 'puts' on the pound amid short-term Brexit risks, we continue to think risk-reward favours chasing GBP/USD upside over the coming months. We target GBP/USD at 1.45 in 2Q18.”

“Equally, the currency should hold its ground against a strong euro and we look for EUR/GBP to trade within the broad 0.85-0.90 range, with a positive Brexit transition outcome suggesting greater risks of a move to the 0.86-0.87 range in the near-term.”