GBP/USD Outlook

Having touched a recent peak of 1.5930 in mid-June, GBP/USD dropped to a low of 1.5330 in early July before recovering towards 1.56 - around the centre of its long-established range. There was no obvious catalyst for the sudden move lower around the turn of the month, with UK data holding up reasonably well and the re-profiling of public spending cuts in the Summer Budget on 8 July, if anything, playing into the hands of UK interest rate hawks. 

Instead, the drop appears to have been mainly motivated by a perception that the previous rally to 1.59 was looking over-extended, as well as repositioning into US dollars out of the euro given the Greek crisis. Since then, comments by BoE Governor Carney and MPC member Miles that the timing of the first rise in UK Bank Rate is moving closer have given the pound a lift. 

"With the US projected to raise interest rates before the UK and domestic fiscal austerity, Brexit uncertainty, and the UK current account deficit a drag on the pound, GBP/USD is expected to resume its move lower. We target 1.50 by mid-2016," says Lloyds Bank.