GBP/USD: Outlook points to further upside – MUFG

Analysts at MUFG Bank, continue to see a trade idea of going long in the GBP/USD pair at 1.4175 with a target at 1.4585 and a stop loss at 1.3950. They see a positive outlook for the pound as a delay in the United Kingdom to the full easing of the lockdown rules is unlikely to be meaningful. There is a greater risk for the pound from EU-UK trade tensions according to them. 

Key Quotes:

“We are maintaining our long cable trade idea as we continue to see the near-term prospects as positive for the pound. While there is a danger that the Delta variant delays the full reversal from lockdown, the high frequency data suggests a very strong rebound in economic activity is well underway anyway. Monthly GDP data for April showed a strong rebound as the UK economy re-opened while trade deals with Australia and Norway as about to be announced. Even if the last stage of the lockdown easing is delayed temporarily the economic impact should be limited. Market attention has also focused more on ongoing tensions between the EU and UK in implementing the Northern Ireland protocol, but again we do not expect a material negative impact on the pound.”

“Flows also look supportive with BoE data revealing strong demand for UK Gilts. We have already reported here previously the increased appetite from Japan for UK debt but the BoE data suggests a pick up sovereign debt buying by foreign investors has been strong. April data revealed foreign investor purchases totalling GBP 11.3bn, which on a 12mth rolling basis amounted to GBP 89.8bn – a record one-year total. Leveraged positioning in GBP remains long but our gauge on whether positioning is stretched indicates it is not with scope for further buying.”