The Pound to Dollar exchange rate has climbed back to two-week highs near 1.3380 as traders unwound bearish Sterling bets on a smoother UK political transition. Attention now turns to Andy Burnham's expected choice of a new Chancellor, and bank forecasters are split on where GBP/USD heads next.
Sterling has clawed back ground against the dollar, with GBP/USD recovering to two-week highs near 1.3380 as investors continued to unwind bearish positions on signs of a calmer UK political backdrop. The pair's gain came alongside a covering of short positions through the week.
Credit Agricole pointed to the Pound's positioning. According to Credit Agricole: "The GBP is still looking oversold, according to our FX positioning data", adding that the Pound could benefit from any potential short squeeze as well.
Forecasters split on the next 12 months
The bank calls diverge. Danske Bank sees GBP/USD sliding to 1.26 on a 12-month view, pointing to a vulnerable Pound and a firm dollar. Bank of America takes the other side, expecting a net gain to 1.37 by the end of this year as capital inflows support the currency.
Chancellor pick becomes the next test
Fiscal policy sits at the center of the outlook. ING says Burnham will probably take over as Labour leader and UK Prime Minister on 20 July, after which markets will watch whether he installs Ed Miliband as Chancellor and what his first budget, expected in early November, contains.
Central bank paths add another split. Danske Bank expects no Bank of England rate hikes while forecasting that the Federal Reserve will hike rates in December and March. Scotiabank, by contrast, stays cautious on the dollar, arguing that broader dollar gains look stretched with markets already quite long the currency.
Source: CurrencyNews.co.uk
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