MUFG Research maintains a bearish bias on GBP/USD in the near-term.
"While Fed Chair Powell and other Fed officials have been talking up the potential need for larger 50bps rate hikes at upcoming FOMC meetings, the BoE is continuing to signal more caution (click here) over the need for further monetary tightening in the near-term...Governor Bailey expressed concern as well that the UK economy is facing a historic hit to real incomes which makes the BoE’s job in setting policy hard. The recent divergence in rhetoric between the BoE and Fed has been reflected in market pricing," MUFG notes.
"The UK rate market is now expecting the BoE to deliver 25bps hikes at upcoming meetings and a cumulative total of around 136bps of hikes by the end of the year. The US market has moved to price in an even more aggressive path for rate hikes with a couple of 50bps hikes priced in over the next three FOMC meetings and a cumulative total of 212bps by the end of the year. A retest and a break below the 1.3000-level for cable appears increasingly likely in the near-term,"MUFGadds.