GBP/USD bulls hold the fort as US Dollar stays soft
|- GBP/USD bulls are in town as the US Dollar weakness and Brexit noise comes back to the fore.
- The Bank of England is seen increasing Bank Rate by a further 25 bps to 4.25% in March.
GBP/USD is flat in Asia as markets consolidate the opening range and US "Dollar softness that kicked in at the start of the week. At the time of writing, GBP/USD is trading at 1.2065 and has stuck to a 1.2042/67 range so far. Sterling is up from a 7-week low due to not only US Dollar weakness but also following British Prime Minister Rishi Sunak signing a new trade deal with the European Union.
The Northern Ireland Protocol has been a factor playing into the Pound's trajectory in the forex space in recent days while a new agreement, known as the Windsor Framework, has been drawn out between the two sides. The agreement is designed to safeguard trade flows within the UK, protecting Northern Ireland’s place within the UK. However, as the Guardian writes, ''the prime minister is obviously not out of the woods. Once the detail emerges, there could be ministerial resignations.''
''Mr Sunak says 'parliament will have a vote at the appropriate time and that vote will be respected'. This gives him the advantage of timing over his would-be opponents who might otherwise find a way to engineer a vote at a moment of maximum danger and force the government to win with Labour support, which would damage, perhaps fatally, Mr Sunak.''
Meanwhile, the Bank of England is seen increasing Bank Rate by a further 25 bps to 4.25% in March. ''We think the BoE will be comfortable pivoting to a 25bps hike in March, followed by a pause in May,'' analysts at Standard Chartered argued. They suggest that they will do so but two factors are key:
''(1) just how generous pay rewards are for public-sector unions, and (2) whether government efforts to reduce economic inactivity – to be outlined in the budget on 14 March – are successful. The former could potentially send an unwanted inflationary signal to the private sector, while the latter could help provide some additional slack to the labour market and also help work through lingering labour supply shortages owing to COVID and Brexit,'' the analysts explained.
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