RaboBank says GBP/USD is likely to trade below 1.30 level in the upcoming months

on Feb 16, 2020
Updated: Mar 11, 2020
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  • RaboBank says GBP/USD is likely to trade below 1.30 level in the upcoming months.
  • Rishi Sunak s쳮ds Sajid Javid as the new Chancellor of the Exchequer.
  • Brexit affairs are likely to keep GBP/USD under pressure in the upcoming months.

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Following the resignation of Chancellor Sajid Javid on Friday, Sterling was seen gaining traction in the forex market. Reportedly, his resignation came following PM Johnson’s order to let go of his advisory team, on which the Chancellor commented that no self-respecting minister would be able to submit to such an order. His team, he added, worked incredibly hard through the complicated times of Brexit and that he found it unfair and unacceptable for his advisory team to now be replaced.

Rishi Sunak Succeeds Sajid Javid As The New Chancellor Of The Exchequer

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Following Javid’s resignation, Rishi Sunak has taken over as the Chancellor of the exchequer. Sunak has previously served as the Chief Secretary to the Treasury.

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Despite the gain in GBP/USD on Friday, Rabobank analysts are not convinced that it would be an easier job to sustain the gains. The analysts anticipated further hurdles in the path of “Cable” in the forex market in upcoming months.

Rabobank highlighted that much of the gains that GBP/USD made on Friday following Chancellor’s resignation were sustained in the short-term. The collective conclusion, as per the market, is that government spending is likely to see an increase in the post-Javid scenario.

The implication, according to Rabobank experts, is that the requirement of a rate cut from the Bank of England (BoE) in order to fuel the UK’s economy will now not be as significant as before. Such a scenario, of course, can be expected to have a positive impact on the Pound Sterling. However, the macroeconomic affairs like the ongoing negotiations between the UK and the European Union regarding a broader trade deal may succeed in keeping the currency pair under pressure in the forex market in the upcoming month.

GBP/USD Closes Last Week Above 1.30 Level On Friday

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In its forecast, Rabobank estimated GBP/USD to continue trading below the crucial 1.30 level in the next one to three months. According to the Rabobank:

“A common rule of thumb is that a 1% shortfall in UK GDP growth could increase the government’s budgets deficit by around 0.7% of GDP. This would imply that the downward revision to the BoE’s growth forecasts would give rise to a step up in gilt issuance in the coming years.”

GBP/USD has closed the last week at 1.3046 on Friday. Considering Rabobank’s recommendations, however, the currency can be expected to fall back below the 1.30 level in the upcoming week.

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