Synopsis:

UOB maintains a bullish outlook on GBP/USD, projecting the pair to reach 1.30 by Q3 and 1.32 by year-end despite potential near-term volatility due to leveraged fund positions.

Key Points:

1. GBP Performance:

   • Year-to-Date: GBP remains the best performing G-10 currency year-to-date.
   • Recent Highs: GBP/USD briefly touched above 1.30, marking a one-year high in July.

2. Leveraged Fund Positions:

   • Net Long Positions: A surge in net GBP/USD longs by leveraged funds to the highest level in a decade could lead to a near-term position squeeze.

3. Long-Term Valuations:

   • Attractive Valuations: UOB remains positive on GBP/USD due to attractive longer-term valuations.
   • Bank of England Rate Cuts: The expectation is that the BoE will cut rates by 50 bps by end of 2024, with a recent 25 bps cut in August and another 25 bps cut anticipated in November.

4. Updated Forecasts:

   • Q3 2024: GBP/USD is forecasted to reach 1.30.
   • Q4 2024: The target is set at 1.32.
   • Q1 2025: Further gains to 1.34.
   • Q2 2025: The pair is expected to reach 1.36.

Conclusion:

Despite potential near-term volatility due to leveraged fund positioning, UOB maintains a bullish outlook on GBP/USD. They anticipate the pair will continue to rise, driven by attractive valuations and expected rate cuts by the BoE, with forecasts set at 1.30 for Q3 2024 and 1.32 by year-end.