GBP/USD: Pound’s donwside not over yet – MUFG

The pound is about to end the week on a positive mood, after an extreme volatile week. The GBP/USD rebounded almost a thousand pips, rising back above 1.1000. Analysts at MUFG Bank point out that the downside in cable is not over yet and the recent bounce is an opportunity to short again. 

Key Quotes:

“The GBP’s recent gains are built on shaky foundations. Risks remain titled to the downside for the cable.”

“Rebounded of course on the back of the intervention by the BoE to bring order to the Gilts market. But the speech by PM Liz Truss yesterday suggests the government will stick to its plans despite the financial market fallout and some opposition voiced by Conservative party backbenchers.”

“The reluctance of the BoE to hike inter-meeting continues to paint a picture of a central bank less enthusiastic for rushing to tighten monetary policy. This likely reflects genuine concerns over growth but if rates are being constrained from going higher due to weak fundamentals and given the close to record current account deficit, the likely channel of adjustment therefore will be GBP. Confidence remains fragile and based on the signs of limited desire for any U-turn, we suspect GBP/USD will begin to decline once more.”