GBP/USD likely to be vulnerable to significant bouts of volatility over coming year, says Lloyds Bank

In the past month, the British pound’s strong performance saw the GBP/USD currency pair rebound back up to pre ‘flash crash’ levels, with the rally briefly extending above 1.26, noted Lloyds Bank in a research report. The recovery partially showed the changes in the Bank of England’s policy expectations. The central bank, after keeping rates on hold during its November MPC meeting, also noted that the previous guidance of a rate cut had also expired.

In the meantime, additional support to GBP came after the High Court ruling that Article 50 could not be set off without a parliamentary vote. This, along with Donald Trump’s victory both raised hopes of a less challenging outlook for the U.K. post Brexit, said Lloyds Bank.

The GBP/USD currency pair is expected to stay around the current levels in the near term, owing to the uncertainty regarding the outcome of the government’s challenge to the High Court’s ruling on Article 50 and the likelihood of a U.S. interest rate hike. The currency pair is expected to trade around 1.24 by the end of this year, according to Lloyds Bank.

Moreover, uncertainty regarding the U.K.’s negotiations with the EU and the effect of the new U.S. administration on the U.S. economy imply that the GBP/USD pair would continue to be vulnerable to significant bouts of volatility in the year ahead, added Lloyds Bank.

At 12:00 GMT, the FxWirePro's Hourly Strength Index of British Pound was bullish at 95.5391, while the FxWirePro's Hourly Strength Index of USD was slightly neutral at 31.0144. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex