Synopsis:

MUFG maintains a bullish GBP/USD outlook and a bearish stance on EUR/GBP, but acknowledges rising upside risks for the pound due to stronger-than-expected UK economic performance in May and the possibility of fewer Bank of England rate cuts.

Key Points:

• Baseline View:
  GBP is expected to appreciate versus the USD and depreciate against the EUR, consistent with prior forecasts.

• Upward Risks Identified:
  Signs of UK economic resilience in May suggest that the BoE may cut less than previously anticipated, which could lift GBP above forecasts.

• Target:
  GBP/USD forecast for Q3 is 1.3530.

Conclusion:

While MUFG retains its base case, it now flags greater upside potential for GBP, especially versus the USD, should the UK economy continue to outperform and the BoE stay cautious on further rate cuts.