GBP/USD: UK government unlikely to impress the markets to fuel GBP buying – MUFG

Analysts at MUFG Bank argue the British pound will likely underperform while risk may hold up over the short-term. They recommend keeping the short GBP/USD trade idea but raising the take-profit level to 1.2260.

Key Quotes:

“We’ve seen GBP/USD get down close to the 1.2250 level but we have rallied this week with the broad sell-off of the dollar. While we hold less conviction of an imminent risk-off episode unfolding over the short-term than we did when we established this trade, we will stick with this trade idea for now. We have however raised the take-profit level to the levels we reached earlier this week.”

“We were unimpressed with PM Johnson’s big speech this week with nothing of much significance offered. Next week Chancellor Sunak will unveil new support measures but again we see it as difficult for the government to impress the markets to such a degree to fuel GBP buying. We are also sceptical of the current level of optimism in relation to an UK-EU trade deal, so see scope for disappointment. So while risk may hold up over the short-term, we see reason for GBP to underperform.”