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GBP/USD around 1.62 in 3m – Rabobank

FXStreet (Edinburgh) - Jane Foley, Senior Currency Strategist at Rabobank, sees the pair returning to the 1.6200 area in a 3m view.

Key Quotes

“The Electoral Management Board of Scotland has not given a specific time for the publication of the Scottish Referendum result”.

“Given the opinion polls are suggesting the outcome could be very close, this election could keep UK investors on the edges of their seats right up to the final national total is released. Consequently cable could be facing another white knuckle ride”.

“ In view of the uncertainties connected with a ‘yes’ vote, there is scope for another significant leg lower in cable if this camp win”.

“While the pound is likely to be encouraged by a ‘no’ vote, the extent of any bounce is likely to be hindered by the fact that the status quo that existed just a few weeks ago cannot be reinstated”.

“A slew of UK economic releases, including CPI inflation and labour data are due this week. The minutes of the September MPC meeting will also be published”.

“These will all have an impact on expectations regarding the timing of the first BoE rate hike of the cycle and it is our expectations that the market has been too enthusiastic about pricing in an ‘early’ move”.

“Bearing in mind weak Eurozone growth, we do not expect a BoE rate hike before May 2015 at the earliest and, if we are correct, cable upside could be capped even on a ‘no’ vote in Scotland”.

“While this could have an influence on GBP/USD, the more immediate headwinds for a recovery should stem from the current firm tone of the USD”.

“Following the recent study from the San Francisco Fed suggesting that the market may be behind the curve in pricing in the first Fed rate hike, the market is prepared for some slightly more hawkish rhetoric from the FOMC this week”.

“The USD has been the best performing currency on a 3 month view and if this trend continues a cable bounce on Friday could be short-lived”.

“Despite the risk of heightened volatility near-term, we expect cable to be at 1.62 on a 3 mth view”.

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