ANZ Research discusses GBP outlook and targets GBP/USD at 1.28, and EUR/GBP at 0.86 (EUR/USD at 1.10) by end of Q3.
"The backdrop to sterling remains unsettled as inflation, domestic political uncertainty and elevated tensions with the EU over the Northern Ireland protocol weigh. Inflation will remain high and is projected to rise above 10% later this year, eroding real incomes and firms’ profit margins. GDP fell 0.1% m/m in March, and the Bank of England will need to consider 50bp rate hikes...," ANZ notes.
"Ongoing difficulties over the Northern Ireland protocol, discussed above, are adding to the challenging domestic backdrop for GBP. The government is introducing legislation that will allow it to unilaterally suspend parts of the protocol. Brussels says it will respond with all the tools at its disposal if necessary (tariffs). Meanwhile, Prime Minister Johnson remains under pressure over breaking COVID rules. GBP underperformance vs EUR is expected," ANZ adds.