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Bullish GBP/USD Outlook Remains Favorable Going into BoE Meeting

Bullish GBP/USD Outlook Remains Favorable Going into BoE Meeting

David Song, Strategist
Bullish GBP/USD Outlook Remains Favorable Going into BoE Meeting

Bullish GBP/USD Outlook Remains Favorable Going into BoE Meeting

Fundamental Forecast for Pound: Bullish

The GBP/USD extended the advance from June, with the pair climbing to a fresh yearly high of 1.7175, and the bullish sentiment surrounding the British Pound should gather pace throughout the second-half of 2014 as the Bank of England (BoE) looks to normalize monetary policy sooner rather than later.

With the economic docket expected to show a further pickup in U.K. outputs, the British Pound may catch a bid ahead of the BoE interest rate decision on July 10, but we may see the central bank refrain from releasing a policy statement once again as the Monetary Policy Committee (MPC) is widely expected to keep the benchmark interest rate at 0.50% while maintaining its asset-purchase target at GBP 375B. Nevertheless, it seems as though we may see a greater dissent at the July meeting as BoE Chief Economist Andrew Haldane sees the U.K. growing ‘3% plus,’ while Deputy Governor Jon Cunliffe continues to highlight the threat of rising home prices, and we may see a more material shift in the policy outlook as the economic recovery gathers pace.

At the same time, negative deposit rates in the Euro-Zone may further heighten the appeal of the sterling as we remain in a yield-seeking environment, and we will continue to look for a further decline in the EUR/GBP as well as the European Central Bank (ECB) pushes into uncharted territory.

With that said, the GBP/USD may make a more meaningful run at the psychologically important 1.7200 handle should we see another batch of positive developments coming out of the U.K., and we will retain our approach of looking for opportunities to ‘buy dips’ in the British Pound amid the growing deviation in the policy outlook. - DS

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