GBP/USD: A sharp fall to the 1.30 level is on the cards – Westpac

A surprisingly more dovish path for policy from the Bank of England (BoE), severe re-pricing of potential rate moves and strained relations with the EU have all weighed on a still vulnerable GBP/USD. Economists at Westpac do not rule out a test of the 1.30 level.

GBP/USD needs to surpass 1.36 to alleviate downside pressure

“The BoE’s 7-2 vote to leave rates unchanged reflected more benign projections for inflation. Growth is now projected to wane into the end of the forecast period. Markets rapidly unwound their pricing of rate cuts and reversed the recent narrowing of spreads to US rates.”

“Heightened tensions with the EU over the N. Ireland protocol and fishing rights have added headwinds for GBP/USD. Consequently, GBP is at risk of sliding towards retracement support in the 1.3150-75 area or even a flush to threaten 1.30.”

“GBP/USD would need to regain levels above 1.3600 to unwind the current more negative outlook for GBP into the 16th Dec BoE MPC meeting.”