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Feb 22 - 11:55 AM

GBP/USD - COMMENT-Sterling's Latest Near-3-Yr Peak May Signal Bullish Run's End

By Paul Spirgel  —  Feb 22 - 10:24 AM

Sterling clawed back near its overnight high of 1.4050 high nL1N2KS1AJ in U.S. trade on Monday, but its latest near-three-year peak may be the signal that the run can't last.

GBP/USD's meteoric rise has brought it back toward pre-Brexit highs, not far from the 1.4850 level it occupied immediately before the historic 2016 UK referendum, and with this comes risks.

Expectations of an easing COVID lockdown, the UK's rapid vaccine rollout nL1N2KS0UK and diminished Brexit tensions played a role in boosting GBP/USD from early November 2020 lows by 1.29.

The pound has also gained steadily against the euro from late December highs at 0.9230 to current 11-month lows at 0.8654 in EUR/GBP.

The BoE also contributed to sterling's rally by keeping UK negative-rate expectations in check, with the front-end of the GBPOIS curve showing a scant 34% chance of rates turning negative by March 2022 BOEWATCH.

But the massive sterling rally may now become a bigger worry for economic growth, with further sterling gains at some point likely to weigh on UK growth and, thus, ultimately weakening the pound.
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Refinitiv IFR Research/Market Commentary


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