Synopsis:

ING remains bearish on GBP/USD, citing fiscal risks ahead of the March 26 UK Budget and ongoing concerns over UK gilt market stability. While a potential reset in UK-EU economic ties could be positive for long-term growth, it won’t provide much near-term fiscal relief. Despite possible short-term moves above 1.30 due to US macro noise, ING sees GBP downside risks prevailing.

Key Points:

1️⃣ UK Budget on March 26 Poses Risks for GBP 📉

• Concerns over fiscal headroom remain, as any UK-EU economic reset would have long-term, not immediate, effects.
• The gilt market is already under pressure, and spillover from EU bonds could worsen sentiment.

2️⃣ Key UK Data Releases Before the Budget 🏦

• January GDP (tomorrow) & February jobs data (next week) could impact short-term GBP moves.
• BoE expected to hold rates next week, but a dovish signal is likely, reinforcing GBP weakness.

3️⃣ Market Pricing in May/June BoE Rate Cuts 📊

• The BoE is seen cutting rates by mid-year, adding to GBP downside risks.

4️⃣ GBP/USD Moves Above 1.30 Likely Temporary 🔄

• Short-term fluctuations may push GBP/USD above 1.30, but ING expects the pair to struggle at those levels.

Conclusion:

ING remains bearish on GBP/USD, with fiscal uncertainty ahead of the UK Budget and BoE rate cut expectations weighing on sterling. While US macro factors could push GBP/USD above 1.30 temporarily, ING sees limited sustainability for GBP at those levels.