GBP/USD may be headed higher still after reaching a new 2025 peak at 1.2871, but the rally on changing UK-U.S. rates views that was bolstered by Germany's spending bazooka may come in for some consolidation in the near term. The pound's 6.26% rise from 1.21 in mid-January has been bolstered by expectations that UK rates may surpass U.S. rates by year-end, which gained further support from BoE external MPC member Megan Greene's comments on the need to keep policy restrictive.

Short-term futures suggest UK rates at 3.96% by December's BoE meeting, while the Fed funds rate falls to 3.71%, reversing the early-February 15bp advantage for U.S. rates.

Given GBP/USD's 7-big-figure rise in the last 5-weeks the pound is likely due some backing and filling, and considering recent performance, which shows GBP/USD +0.58 over the past three months and the EUR -12.35%, EUR/GBP cross buying may tamp down on sterling gains as relative performance moves back in line. Still, the currently more dovish Fed outlook could allow GBP/USD bulls to target November highs above 1.30 and October peaks above 1.31.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)