ING Research discusses GBP outlook and sees a scope for testing 1.2500 in the near-term but doesn't adopts a structural bearish bias on Sterling yet.
"Sterling continues to trade on a fragile footing after some consumer data put a dent in the Bank of England (BoE) tightening story. Most now feel that GBP/USD has to test 1.2500, and 1.2850 will now act as strong resistance - should it get that high. Tightening expectations for the 5 May BoE meeting have dropped backed to 29bp from 38bp early last week. However, by December, Bank Rate is still priced at 2.17%. For us, one of the key stories this year will be whether central banks push ahead with tightening even as growth slows. That will clearly deliver flatter or inverted yield curves, but could actually see currencies staying strong," ING notes.
"So until the BoE waves the white flag on the rest of its tightening cycle, we think it may be too early to write off sterling - particularly against the euro. Don't be surprised if EUR/GBP sinks back into a 0.8300-0.8400 range," ING adds.