NAB Research discusses GBP outlook and targets GBP/USD at 1.31 by end of Q1 and at 1.36 by year-end.
"For GBP, of course the UK-EU trade negotiations remain the dominating if binary factor that will ultimately determine GBP’s direction of travel. For all GBP/USD’s upside achievements, GBP has suffered against a stronger EUR and particularly so since the stuttered unveiling and passage of the EU Recovery Fund from April, since when EUR/GBP is +4%.
On the presumption that we do soon see a renewed period of consolidation rather than extension of USD weakness (by no means certain) then the 1.32-1.33 area will make a suitable upside cap for GBP/USD; being levels that forestalled upside attempts variously in 2017, 18, 19 and 2020 outside of the early 2018 Theresa May Brexit deal optimism and Boris Johnson’s December 2019 election victory run at 1.35," NAB notes.
Another factor playing into why we think GBP/USD hasn’t got the muscle to reach 1.35 and certainly not able to make the vault up into the 1.37-1.44 area just yet is the UK’s relative economic underperformance,'" NAB adds.