GBP/USD continues to range trade – Lloyds Bank

Gajan Mahadevan, FX Strategist at Lloyds Bank, suggests that with major event risk approaching, including June’s US FOMC meeting and the UK’s EU referendum, GBP/USD volatility is likely to remain elevated, although we expect the 1.40 – 1.48 recent range to hold.

Key Quotes

“GBP/USD is currently being heavily influenced by three key uncertainties: the market pricing of US policy rate expectations (primarily the FOMC meeting in June); the UK’s domestic economic outlook; and the outcome of the EU referendum (23rd June). Having held important support at 1.40 in early April, GBP/USD appreciated towards 1.48 (close to its year-to-date high).

The move was led by receding expectations of an imminent 25bp rate hike from the Federal Reserve, and an improvement in EU-related sentiment in the aftermath of US President Obama’s intervention. The currency pair has since settled in the middle of its recent range, around 1.44, following some underperformance from domestic economic data – most notably April’s forward-looking composite PMI, which hit a three-year low. We expect GBP to remain confined to its recent 1.40 – 1.48 range ahead of key upcoming events.”