GBP/USD rallied on Monday off overnight lows by 1.2990 that came after monthly UK February GDP slid from +0.8% to +0.1% nL5N2W90Y3, but sterling remained down 0.1% at 1.3025 in early U.S. trade with the growth outlook adding to pressure from the BoE's dovish turn that could keep it anchored near trend lows.
Rising ECB rate-hike expectations are lifting EUR/GBP, putting additional pressure on GBP/USD.
Euribor 3-month rate futures expiring in December 2022 FEIZ2 have fallen 73 basis points since March 2, highlighting the increasingly hawkish ECB outlook, while UK 3-month Sonia futures for the same period SON3Z2 have fallen 67 basis points.
Though 6 basis points to year-end is hardly significant, a look at expectations further out the curve hints the pound is likely to remain under persistent pressure versus the USD and EUR as Euribor December 2023 futures have dropped 144bps while UK Sonia futures have dropped only 93 bps.
With the Fed hawkish and markets awakening to potential ECB tightening, the less aggressive BoE tone will hobble GBP/USD and potentially lead to a test of the April 8 low by 1.2982.
Should rate expectations diverge further GBP bears are likely to test early November lows by 1.2854 versus the USD and EURGBP March lows below 0.8300.
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