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The Pound to Dollar exchange rate has scope to rise further to 1.3250 in the days ahead and GBP/EUR might be likely to return toward 1.20, according to a trader at JPMorgan, who’s recently unwound a short position in the latter pair.
GBP/USD rallied to six-month highs around 1.32 previously on Thursday as the US dollar continued to unravel in the wake of President Donald Trump’s earlier announcement of new tariffs to be applied to imports from all countries, fueling a deterioration of appetite for a currency that has fallen heavily in recent months.
The pair is now up 4.9% for the year-to-date because the dollar has been falling since the release of softer-than-expected US inflation figures for December in mid-January, and because the greenback’s losses have snowballed since Trump said from the Oval Office in March that he might impose even higher tariffs on countries who allow their currencies to depreciate in response to other newly-adopted levies.
“While cable [GBP/USD] has now broken above 1.3050 and is poised for further gains, I prefer EUR longs here and will keep my reduced cross position as I still think the relative fiscal positions are too stark not to matter,” said Laoise Ni Thighearnaigh, a trader on the FX desk at JPMorgan.
Above: Pound to Dollar rate shown at daily intervals alongside GBP/EUR.
“The next level for cable is 1.3250, while 1.3050 turns supportive, and the [EUR/GBP] cross is 0.8320/90 with a focus on 1.20 in GBP/EUR,” Thighearnaigh said in a Thursday market commentary.
Thighearnaigh and colleagues currently hold foreign exchange options that would pay out if GBP/EUR remains under pressure up ahead, having already exited a bearish bet against the pair in the cash market earlier this week when sterling fell from 1.20 on Wednesday, to lows near 1.18 on Thursday.
They’re now wary of a possible recovery back to 1.20 over the days ahead, and are also looking for the dollar to fall further along the way, particularly against the euro and Japanese yen, which is why the FX desk is also short USD/JPY and looking for a decline toward 143 in the wake of Thursday’s break below 146.
“[Dollar weakness] feels set to continue as we lead into [non-farm payrolls] on Friday, where strength will be quickly dismissed and weakness will be seized upon,” Thighearnaigh said. “The euro couldn’t even break below 1.08 on a 20% tariff delivery and I think that is very interesting. I also added USD/CAD shorts.”
Above: ICE US Dollar Index shown at daily intervals.