GBP/USD: Set to test post-Brexit referendum highs – MUFG

It has been a strong start to the year for the pound which has extended its advance against the US dollar to around 2.2% year to date and against the euro to around 3.3%. The GBP against an equally-weighted basket of the EUR and USD is now only around 1.5% below the post Brexit referendum high from April 2018 which is likely to prove an important juncture for pound performance, per MUFG Bank. 

Key quotes

“A break above the post-referendum highs would encourage speculation for further near-term pound gains now that Brexit uncertainty has eased. Whereas if those highs remain in place, market participants could start to more seriously question whether recent pound gains have gone too far.”

“The UK government will set out its plans to begin easing COVID restrictions on Monday. Press reports have been suggesting that the UK government will adopt a very cautious approach. A slower paring back of restrictions could dampen some of the recent optimism over the faster roll out of vaccines in the UK.” 

“UK press reports have suggested that Chancellor Sunak is likely to delay plans to raise taxes and extend support for the labour market. A decision to extend support and hold back from raising taxes at the current juncture is the right decision in our view given the current health of the economy.”