ANZ Research discusses GBP/USD outlook and notes that while Sterling is fundamentally cheap on a medium-to-long term basis, an extended dip towards 1.25 cannot be ruled out, near term.
"Prime Minister May is keen to build support for the UK government’s plan for its future relationship with the EU ahead of key meetings with heads of state in September and, most importantly, the October EU Summit.
Sterling is fundamentally cheap and the economy is holding up reasonably well. But uncertainty is dominating in thin summer markets. Progress on Brexit is needed to encourage buying interest in the pound, which remains rudderless for now.
Key dates to watch are the EU leaders meeting in Salzburg on, 20 September and the European Council meeting of heads of state on 18 October. For now, though, GBP remains vulnerable," ANZ argues.